- The British Pound bounces strongly against the US Dollar, which corrects after Wednesday’s rally.
- The US dollar should remain well supported by Trump’s victory in the US presidential election.
- Investors await monetary policy decisions from the Fed and BoE, with markets expecting both central banks to cut interest rates by 25 basis points.
The British Pound (GBP) bounces sharply near 1.2935 against the US Dollar (USD) in the London session on Thursday after hitting a new near 11-week low near 1.2830 on Wednesday. The GBP/USD pair bounces as the US Dollar (USD) corrects slightly after a strong rally. The Dollar Index (DXY), which measures the value of the Dollar against six major currencies, falls near 104.90 after reaching a new four-month high around 105.40.
The US dollar rose sharply on Wednesday due to the overwhelming victory of Republican candidate Donald Trump over his Democratic rival Kamala Harris. The Dollar’s appeal improved dramatically as Trump has promised to raise import tariffs by 10% universally and reduce corporate taxes if he wins the presidential election, moves traders interpreted as positive for the US dollar.
Higher tariffs could boost demand for domestic production, while lower corporate taxes would leave more money in the hands of corporations, boosting investment. A scenario that will result in higher investments, spending and labor demand, which will increase price pressures and allow the Federal Reserve (Fed) to adopt a hardline stance on interest rates.
For significant clues on the impact of Trump’s victory on the path of United States (US) interest rates and inflation prospects, investors will focus on the Fed’s policy meeting at 7 p.m. :00 GMT. Officials are widely anticipated to cut interest rates by 25 basis points (bps) to the 4.50%-4.75% range.
Daily Market Summary: Sterling Outperforms Major Peers
- The British pound performs strongly against its major peers, except Asia-Pacific currencies, ahead of the Bank of England (BoE) monetary policy decision at 12:00 GMT. The BoE is expected to cut interest rates by 25 basis points (bps) to 4.75%, with a split vote of 7-2. The two dissenting votes of the Monetary Policy Committee (MPC) are considered in favor of maintaining interest rates at current levels.
- This will be the BoE’s second interest rate cut this year. The BoE began reducing interest rates in August by cutting lending rates by 25 bps, but opted to keep them steady in September.
- BoE Governor Andrew Bailey’s press conference after the policy decision will be interesting to watch. Bailey is expected to face a series of questions about the impact on monetary policy and inflation of both Donald Trump’s victory in the US presidential election and the Fall Forecast Statement presented last week.
- According to the National Institute for Economic and Social Research (NIESR), the growth rate of the UK economy could be more than halved, to 0.4%, if Trump implements the tariff increases he promised in the election campaign. .
Technical Analysis: British Pound Holds Above 200 Days EMA
The British Pound rebounds sharply after recording a new 11-week low near 1.2830 against the US Dollar. The GBP/USD pair recovered after finding buying interest near the 200-day EMA around 1.2860.
However, the short-term trend remains bearish as the 20-day and 50-day exponential moving averages (EMAs) around 1.2990 and 1.3030, respectively, are declining.
The breakout of the lower boundary of an ascending channel on the daily time frame has also added evidence supporting further declines.
The 14-day Relative Strength Index (RSI) remains near 40.00. A bearish momentum would resume if the RSI (14) fails to hold this level.
Looking down, the 1.2800 round level support will be an important cushion for the British Pound bulls. To the upside, Cable will face resistance near the psychological figure of 1.3000.
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit 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, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound 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 whether it has achieved its main objective of “price stability” – a constant 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 will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound 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 in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of 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.
