- The Pound Sterling trades with caution as investors await BoE Bailey’s speech for fresh guidance on interest rates.
- Bailey may reiterate a dovish stance on the interest-rate outlook, signaling that more interest-rate cuts are on the way.
- The US Dollar outlook remains upbeat as uncertainty increases ahead of the US presidential election.
The Pound Sterling (GBP) performs mixed against its major peers on Tuesday, struggling for direction as investors await the Bank of England (BoE) Governor Andrew Bailey’s speech, who will speak at 13:25 GMT at the Bloomberg Global Regulatory Forum in New York. In his speech, Bailey is expected to provide fresh guidance on the interest-rate outlook, a key driver for the Pound Sterling’s valuation.
In an interview with the Guardian newspaper at the start of the month, Bailey stressed the need to cut interest rates aggressively if price pressures continue to ease. He said the BoE could become “a bit more activist” and “a bit more aggressive” in its approach to lowering rates if there was further welcome news on inflation.
Meanwhile, a column written by BoE’s rate-setter Megan Greene, published in the Financial Times on Monday, indicated that the policymaker favored a gradual rate-cut approach, with doubts over whether forward consumption levels will be strong or weak.
According to market speculation, traders are confident about the BoE cutting interest rates by 25 basis points (bps) to 4.75% in November. For December, traders are also betting heavily for another 25 bps cut, Reuters reported.
Daily digest market movers: Pound Sterling holds key support against US Dollar
- The Pound Sterling continues to hold the key support of 1.2970 against the US Dollar (USD) in Tuesday’s London session. However, the outlook of the GBP/USD pair remains uncertain as the US Dollar grips gains near an 11-week high and is expected to gain further amid United States (US) election uncertainty. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 104.00.
- A sheer strength in the US Dollar suggests that traders are pricing in former US President Donald Trump’s victory in presidential elections, which are just two weeks away. Trump vowed to hike tariffs and lower taxes in his election promises if he wins. The scenario will undermine the currencies of the US’s close trading partners and keep interest rates escalated. However, the latest national polls have shown a neck-and-neck competition between Trump and US Vice President and Democratic candidate Kamala Harris.
- Regarding the interest rate outlook, traders have priced in two rate cuts of 25 bps by the US Central Bank in November and December. The Fed can afford to avoid a sizeable interest rate cut in November, as earlier expected after a slew of upbeat US economic data for September diminished risks of an economic slowdown.
- On the economic front, investors will focus on the flash S&P Global Purchasing Managers Index (PMI) for October and the Durable Goods Orders data for September, which will be published on Thursday and Friday, respectively.
Technical Analysis: Pound Sterling trades at make or a break near 1.3000
The Pound Sterling trades close to near the psychological support of 1.3000 in European trading hours. The near-term outlook of the GBP/USD remains bearish as it hovers below the 50-day Exponential Moving Average (EMA), which trades around 1.3090.
The 14-day Relative Strength Index (RSI) hovers near 40.00. A breakdown through the same will strengthen the bearish momentum.
Looking down, the upward-sloping trendline drawn from the April 22 low of 1.2300 will be a major support zone for Pound Sterling bulls near 1.2920. On the upside, the Cable will face resistance near the 20-day EMA around 1.3110.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Source: https://www.fxstreet.com/news/pound-sterling-consolidates-as-traders-brace-for-boe-baileys-speech-202410220930