- The Pound Sterling falls to near 1.3500 against the US Dollar ahead of the US CPI data for August.
- The US inflation data will influence market speculation for the size of the Fed’s interest rate cut next week.
- Investors await UK GDP and factory data for July, scheduled for Friday.
The Pound Sterling (GBP) slides to near 1.3500 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair is expected to trade cautiously ahead of the United States (US) Consumer Price Index (CPI) data for August, which will be published at 12:30 GMT.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades near a three-day high around 98.00 at the time of writing.
As the CME FedWatch tool shows that traders are confident about the Federal Reserve (Fed) resuming its monetary-easing campaign in the policy meeting next week, investors will monitor the US inflation data to get cues about the likely size of the interest rate cut.
Traders see an 8% chance that the central bank will cut interest rates by 50 basis points (bps) to 3.75%-4.00% on September 17, while the rest point a standard 25-bps interest rate reduction, according to the CME FedWatch tool.
As measured by the CPI, the US headline inflation is expected to have grown at an annualized pace of 2.9%, faster than 2.7% seen in July. The core CPI – which excludes volatile food and energy items – is estimated to have risen steadily by 3.1% YoY. Month-on-month headline and the core CPI are expected to have grown by 0.3%.
Signs of price pressures cooling would prompt traders to raise bets supporting a bigger interest rate reduction by the Fed in next week’s policy meeting. On the contrary, hot inflation figures would weaken the same.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.09% | 0.47% | 0.15% | 0.24% | 0.21% | 0.09% | |
| EUR | -0.09% | -0.02% | 0.24% | 0.06% | 0.11% | 0.16% | -0.04% | |
| GBP | -0.09% | 0.02% | 0.26% | 0.05% | 0.06% | 0.17% | -0.02% | |
| JPY | -0.47% | -0.24% | -0.26% | -0.23% | -0.19% | -0.11% | -0.30% | |
| CAD | -0.15% | -0.06% | -0.05% | 0.23% | -0.05% | 0.09% | -0.06% | |
| AUD | -0.24% | -0.11% | -0.06% | 0.19% | 0.05% | 0.05% | -0.14% | |
| NZD | -0.21% | -0.16% | -0.17% | 0.11% | -0.09% | -0.05% | -0.21% | |
| CHF | -0.09% | 0.04% | 0.02% | 0.30% | 0.06% | 0.14% | 0.21% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: Pound Sterling trades calmly against its peers
- The Pound Sterling trades broadly stable against its main currency peers on Thursday. The British currency has performed better against its major peers over the past few trading sessions, with traders anticipating a policy divergence between the Bank of England (BoE) and other central banks from Europe and North America.
- The BoE is unlikely to cut interest rates in the near term as stubborn inflationary pressures in the United Kingdom (UK) economy have remained a key drag on the central bank’s dovish speculation. The UK headline CPI rose at an annualized pace of 3.8% in July, the highest level seen since February 2024.
- In the hearing before the House of Commons’ Treasury Committee last week, BoE Deputy Governor Clare Lombardelli delivered a hawkish guidance on the interest rate outlook, citing upside inflation risks. Lombardelli warned that further monetary policy expansion could derail the central bank’s goal of bringing inflation sustainably down to the 2% target.
- In Thursday’s session, the European Central Bank (ECB) is expected to hold its Deposit Rate steady at 2% and might leave the door open for further interest rate cuts. This would be the second straight meeting where ECB officials will keep their borrowing rates steady.
- Going forward, investors will focus on the UK Gross Domestic Product (GDP) and the factory data for July, which are scheduled for Friday. The Office for National Statistics (ONS) is expected to show that the economic growth remained stagnant on a monthly basis. In June, the UK economy expanded by 0.4%.
- On the fiscal front, a report from Reuters has shown that UK Chancellor of the Exchequer Rachel Reeves has committed to exploring pro-growth tax reforms to support small businesses. New tax reforms by the UK government to boost domestic growth could force it to compromise with its own-defined fiscal rules, a move that could boost UK gilt yields, knowing that the economy is already facing ballooning fiscal debt risks.
Technical Analysis: Pound Sterling trades close to 20-day EMA
The Pound Sterling falls to near 1.3500 against the US Dollar (USD) on Thursday. The GBP/USD pair trades inside the Ascending Triangle chart pattern, which indicates indecisiveness among investors. The horizontal resistance of the above-mentioned chart pattern is plotted from the July 23 high around 1.3585, while the upward-sloping border is placed from the August 1 low near 1.3140.
The near-term trend of the Cable remains sideways as it trades close to the 20-day Exponential Moving Average (EMA), which is around 1.3489.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the July 1 high near 1.3800 will act as a key barrier.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.