The Pound Sterling (GBP) is facing significant selling pressure against major currencies, particularly the US Dollar (USD), in London’s trading session. This downward trend comes just before the Bank of England’s (BoE) interest rate decision announcement at 11:00 GMT.
Investors are anticipating a potential 25 basis points (bps) interest rate cut by the BoE, bringing rates down to 5%. This move would mark the first rate cut since March 2020, as the central bank has maintained a tight monetary policy stance since December 2021 to combat rising inflation due to pandemic stimulus measures.
Market experts view the rate cut decision as a challenging one for policymakers, given the high service sector inflation of 5.7% compared to the bank’s forecast of 5.1%. Additionally, concerns over strong wage growth and tight labor market conditions in the UK add to the pressure on policymakers.
Market Analysis: Pound Sterling Weakens, US Dollar Strengthens
- The Pound Sterling falls to a three-week low near 1.2800 against the US Dollar, breaking below a consolidation range. Despite the Federal Reserve’s dovish stance on interest rates, the US Dollar has rebounded, with the USD Index climbing to 104.20 from an intraday low of 103.86.
- The Fed’s decision to leave interest rates unchanged and hint at potential rate cuts in the future has boosted the US Dollar’s performance. Fed Chair Jerome Powell mentioned that a rate cut could be on the table in the September meeting if economic conditions align.
- Focus is now on the US ISM Manufacturing PMI report for July, which is expected to show improvement in factory activities but remain below the 50.0 threshold for expansion.
Technical Analysis: Pound Sterling’s Downward Trend
The GBP/USD pair is approaching the lower boundary of a Rising Channel pattern on a daily chart, with support near 1.2800. The 14-day RSI is declining towards 40.00, indicating a potential reversal in momentum.
Key levels to watch include 1.2800 as support and 1.3140 as resistance for the Pound Sterling against the US Dollar.
Key Takeaways for Investors
For investors and traders, the current market conditions suggest a bearish outlook for the Pound Sterling against the US Dollar. The BoE’s potential rate cut and concerns over high inflation and wage growth are driving the currency’s weakness.
On the other hand, the US Dollar is gaining strength despite dovish signals from the Fed, indicating a positive outlook for the Greenback in the near term.
Overall, investors should closely monitor central bank decisions, economic data releases, and geopolitical events to make informed investment decisions in the volatile foreign exchange market.