- The British Pound recover slightly against its major peers after the UK ONS reported robust factory data and expected GDP growth in August.
- Traders expect the BoE to cut interest rates in at least one of its two remaining monetary policy meetings this year.
- Investors await US PPI data for fresh clues on the Fed’s interest rate outlook.
The British Pound (GBP) moves lower against its major peers in the London session on Friday following the release of UK data. The initial reaction of the British currency was positive, however, it failed to capitalize on it even though the data was better than expected, and the Gross Domestic Product (GDP) grew as expected in August.
The Office for National Statistics (ONS) reported that the economy grew by 0.2%, as expected, after remaining flat in July. Monthly manufacturing and industrial production rose at a robust pace of 1.1% and 0.5%, respectively, while economists expected them to grow by 0.2%.
Annually, manufacturing and industrial production contracted by 0.3% and 1.6%, respectively. However, the pace at which both economic data declined was slower than in July.
Upbeat monthly factory data and expected GDP growth have improved the UK’s economic outlook. This would allow Bank of England (BoE) policymakers to pursue a shallow policy easing cycle. Financial market participants expect the BoE to cut interest rates only once in the remaining two monetary policy meetings this year.
Looking ahead, the next trigger for the British pound will be the UK employment data for the three months ending in August and the Consumer Price Index (CPI) report for September, due out on Tuesday and Wednesday, respectively. Economic data will significantly influence market expectations for the BoE’s likely interest rate action in November.
Daily Market Summary: Pound Sterling Remains Weak Against US Dollar Ahead of US PPI
- The British pound eases against the US dollar (USD) on Friday. The GBP/USD pair is trading slightly above the monthly low of 1.3010, but the outlook is cautious as the Dollar remains firm. The Dollar Index (DXY), which measures the value of the Dollar against six major currencies, is holding on to gains near 103.00.
- The US dollar clings to gains as warmer-than-expected United States (US) Consumer Price Index (CPI) data for September kept the possibility of the Fed off the table. Federal (Fed) cut interest rates by 50 basis points (bps) again at the November meeting.
- Thursday’s CPI report showed that annual core inflation, which excludes volatile food and energy prices, accelerated to 3.3%. Headline inflation rose 2.4%, faster than estimates of 2.3% but slower than August’s figure of 2.5%.
- However, traders are confident that the Fed will cut interest rates next month, but at a gradual pace of 25 bps, according to the CME’s FedWatch tool. Furthermore, most Fed policymakers see further rate cuts as appropriate.
- On Thursday, Federal Reserve Bank of New York President John Williams said at an event at Binghamton University: “Based on my current forecast for the economy, I hope it is appropriate to continue the process of moving the stance of monetary policy to a more neutral configuration over time.”
- On the economic data front, investors will focus on US Producer Price Index (PPI) data for September, due at 12:30 GMT. The annual headline PPI is estimated to have slowed to 1.6% from 1.7% in August. In contrast, the core PPI, which excludes volatile food and energy prices, is expected to have accelerated at a faster pace to 2.7% from 2.4% in August.
Technical Analysis: Sterling remains below the 20 and 50 day EMAs
The British Pound remains under pressure near the monthly low of 1.3010 against the US Dollar. The outlook for the GBP/USD pair is vulnerable as it has stabilized below the ascending trend line drawn from the December 28, 2023 high at 1.2827.
Cable’s short-term trend has turned bearish as it is trading below the 20-day and 50-day EMA, which are trading around 1.3167 and 1.3106, respectively.
The 14-day Relative Strength Index (RSI) falls near 40.00. It would appear more bearish if the momentum oscillator falls below the mentioned level.
Looking up, the round level resistance at 1.3100 and the 20-day EMA near 1.3170 will be a major barrier for the British Pound bulls. On the downside, the British pound would find support near the psychological figure of 1.3000.
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.
