- The sterling pound moves up to 1,3330 against the US dollar while the dollar suffers after the publication of US weak economic data.
- The Fed is expected to maintain stable interest rates in the next two policy meetings.
- Investors expect the UK CPI data next week to obtain new clues about the BOE monetary policy perspective.
The sterling pound (GBP) rises even closer to 1,3330 against the US dollar (USD) in the European session on Friday, extending the upward movement on Thursday. The GBP/USD pair earns as the US dollar (USD) remains in the rear after the publication of the April Price Index (IPP) index, which were softer than expected.
The US dollar index (DXY), which measures the value of the dollar against six main currencies, lies down nearly 100.50.
The US IPP data showed that the prices of the producers fell unexpectedly compared to the previous month due to strong deceleration in the hospitality sector. According to a Reuters report, the inflation of the producers was dragged down due to a strong drop in tourist trips, which affected the sales of plane tickets, as well as the reserves of hotels and motels. The report also showed signs that tourists are boycotting trips to the US following the protectionist commercial policy of President Donald Trump, the repression of immigration, as well as references to Canada as the 51st state and a desire to acquire Greenland.
Weak retail sales data have also weighed over the US dollar. Retail sales, a key measure of consumer spending, increased only 0.1%, substantially slower than the reading of March 1.5%. It seems that households rushed to go shopping in March anticipating reciprocal rates that would be introduced by President Trump. Automobile sales contracted 0.1%, compared to an increase of 5.5% observed in March. In addition, lasting articles saw moderate growth of 0.3% in April compared to a robust increase of 1.5% in the previous month.
The cooling of the inflation of the producers and the weak data of retail sales have led to a strong correction in the yields of the US Treasury bonds to 10 years, from its maximum monthly of 4.55% recorded on Thursday to about 4.40% during the European negotiation hours on Friday.
Despite weak data, market expectations so that the Federal Reserve (FED) maintain interest rates without changes in the next two policy meetings were generally stable, since officials seem to be more inclined to reduce consumer inflation expectations instead of lowering interest rates to heal current economic concerns. According to the CME Fedwatch tool, the probability that the FED maintain the stable rates in the 4.25% -4.50% range at June and July meetings is 91.8% and 61.4%, respectively.
Daily summary of market movements: the pound sterling corrects in front of its main peers
- The sterling pound goes back to its main peers, except against the US dollar, on Friday after a strong upward movement the previous day. The British currency attracted significant offers on Thursday after the publication of the monthly and quarterly data of the Gross Domestic Product (GDP) of the United Kingdom, which showed that the economy expanded at a faster rate than expected.
- The strong GDP growth rate has provided margin to the officials of the Bank of England (BOE) to keep interest rates at their current levels if inflation persists or even accelerates.
- This week, the chief economist of the BOE, Huw Pill, warned that inflation could continue to be stronger than expected: “I am still concerned that we have seen a kind of structural change in the behavior of pricing and salary fixation, perhaps driven by the types of things that were involved in the models of the inflationary process of the 70s and 80s.” He stressed that high inflation would strengthen the need to maintain higher interest rates. Pill was one of the two members of the Monetary Policy Committee (MPC), together with Catherine Mann, who voted to keep interest rates without changes in the policy meeting last week. The BOE reduced its key interest rates in 25 basic points (PB) to 4.25%.
- To obtain new clues about the United Kingdom inflation, investors expect the data of the April Consumer Price Index (IPC), which will be published on Wednesday. The cooling signals of inflationary pressures would add to market expectations that the BOE will cut interest rates again at the June policy meeting.
Technical analysis: The pound sterling jumps above 1,3300
The sterling pound rises above 1,3300 against the US dollar on Friday. The GBP/USD torque is maintained above the 20 -day exponential (EMA) mobile average, which quotes around 1,3256, suggesting that the short -term trend is upward.
The 14-day relative force (RSI) index oscillates within the range of 40.00-60.00. A new bullish impulse would appear if the RSI breaks above 60.00.
On the positive side, the maximum of three years of 1,3445 will be a key obstacle to the torque. Looking down, the psychological level of 1.3000 will act as an important support area.
LIBRA ESTERLINA FAQS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself 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, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom 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 down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy 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.
