- The British Pound is holding on to gains near 1.3400 against the US Dollar as the latter weakens following subdued inflation data.
- A slight acceleration in US core PCE inflation suggests the Fed’s battle against inflation is not over yet.
- Investors await speeches by the Fed’s Powell and the BoE’s Greene.
The British Pound (GBP) continues to hold gains near the 1.3400 round level resistance against the US Dollar (USD) in the London session on Monday. The outlook for the GBP/USD pair remains firm as the dollar trades near yearly lows after data released on Friday showed US inflation slowed further in August. The US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, remains near the key support of 100.20.
The Personal Consumption Expenditure (PCE) Price Index report showed that annual inflation grew 2.2%, slower than estimates of 2.3% and July’s reading of 2.5%. This slowdown in price pressures is likely good news for Federal Reserve (Fed) Chairman Jerome Powell and his colleagues. However, a victory over inflation is not yet guaranteed as the core PCE price index – which excludes volatile food and energy prices and is the Federal Reserve’s (Fed) preferred measure of inflation – accelerated to 2.7 % from previous post of 2.6%.
Declining US inflation has raised market expectations for further interest rate cuts, but appears insufficient to cement another 50 basis point (bp) cut as the Fed now becomes more attentive to rising risks. of the labor market and an economic slowdown.
This week, investors will focus on a host of US economic data such as ISM Manufacturing and Services PMIs, ADP Employment and Non-Farm Payrolls (NFP) data for September, and JOLTS Job Openings for September. August, which will provide new clues about the current health of the labor market and the economy.
In Monday’s session, investors will pay attention to Jerome Powell’s speech at 17:00 GMT, who is expected to provide new guidance on interest rates. Powell’s comments could indicate whether the Fed will cut interest rates again with a larger-than-usual 50bp reduction, as it did on September 18, or shift to a gradual 25bp reduction.
Daily Market Summary: Sterling Underperforms Against Asia-Pacific Peers
- The British pound is showing strength against its major peers, except Asia-Pacific currencies, at the start of the week. The British currency gains as investors expect the pace and depth of interest rate cuts by the Bank of England (BoE) to be less than those of other central banks in the Group of Seven (G-7) nations. 7).
- Asia-Pacific currencies such as the Australian dollar (AUD) and the New Zealand dollar (NZD) are performing strongly after China’s cabinet announced on Sunday that they will focus on resolving outstanding economic issues and strive to meet the annual economic and social development goals, Reuters reported. The likelihood of an improvement in China’s economic prospects enhances the attractiveness of Asia-Pacific currencies given that its nations are important trading partners of China.
- Financial market participants expect the BoE to cut interest rates once again by 25 bps at one of the two remaining meetings this year. For fresh clues, investors will focus on the BoE’s Megan Greene’s speech at 20:10 GMT, who is an external member of the nine-member Monetary Policy Committee (MPC). Greene voted to keep interest rates unchanged at the Sept. 19 and Aug. 1 policy meetings.
- On the economic front, revised second quarter Gross Domestic Product (GDP) estimates showed the UK economy grew by 0.5%, slower than the preliminary reading of 0.6% on a quarterly basis. Second quarter annual GDP growth was also lower, coming in at 0.7% from the preliminary estimate of 0.9%.
Technical Analysis: Sterling remains sideways near 1.3400
The British Pound consolidates near the key resistance of 1.3400 against the US Dollar in European trading hours. The short-term outlook for the GBP/USD pair remains firm as the 20-day EMA near 1.3250 is on an upward slope.
In early September, Cable strengthened after recovering from a corrective move near the trend line drawn from the December 28, 2023 high of 1.2828, from where it delivered a sharp rise after a breakout on August 21.
The 14-day Relative Strength Index (RSI) remains above 60.00, suggesting active bullish momentum.
Looking up, Cable will face resistance near the psychological level of 1.3500. On the downside, the 20-day EMA near 1.3235 will be the key support for the British Pound bulls.
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded currency unit in the world, with 12% of all transactions and an average of $630 billion per day, according to 2022 data.
Its key currency pairs are GBP/USD, also known as “Cable”, which represents 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on achieving its main objective of “price stability”, that is, a stable inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates.
When inflation is too high, the Bank of England tries to contain it by raising interest rates, which makes access to credit more expensive for individuals and companies. This tends to be positive for the GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation is too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that companies borrow more to invest in projects that generate growth.
The published data gauges the health of the economy and may influence the value of the Pound sterling. Indicators such as GDP, manufacturing and services PMIs, and employment can influence the direction of the Pound.
A strong economy is good for the British pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen the Pound. Otherwise, if economic data is weak, the pound is likely to fall.
Another significant data 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 during a given period.
If a country produces highly sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers wishing to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
