As the early European session begins on Tuesday, the GBP/USD pair is trading lower near 1.3125. This downward movement is driven by a stronger US Dollar (USD) ahead of the release of key US economic data. Investors are holding back, waiting for the US ISM Manufacturing Purchasing Managers Index (PMI) and a speech by Bank of England (BoE) Deputy Governor Sarah Breeden later in the day.
There is a growing confidence among investors that the US Federal Reserve (Fed) will implement a 25 basis points (bps) rate cut at its upcoming meeting in September. This sentiment is reflected in the CME FedWatch tool, which shows odds of nearly 69% for a rate cut. Fed Chair Jerome Powell’s recent comments at the Jackson Hole symposium also support the expectation of policy adjustments.
The potential Fed rate cuts could put pressure on the US Dollar in the short term. Analysts at Rabobank anticipate four rate cuts between September and January, followed by a pause in 2025. The upcoming US Nonfarm Payrolls (NFP) report will be closely watched for clues about the size and pace of the rate cut. Forecasts suggest 163K job additions in August and a decrease in the Unemployment Rate to 4.2%.
While the market does not anticipate a rate cut by the BoE in the September meeting, the likelihood of a 25 bps rate cut in November stands at 87.2%. With no major economic data releases from the UK this week, the GBP/USD movement will be driven primarily by the dynamics of the USD.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world, dating back to 886 AD, and is the official currency of the United Kingdom. It is the fourth most traded currency in the world, with key trading pairs like GBP/USD and GBP/JPY. The value of the Pound Sterling is influenced by the Bank of England’s monetary policy decisions and key economic indicators like GDP, PMIs, and the Trade Balance.
Analysis: The GBP/USD pair is facing downward pressure as investors await key US economic data and a potential rate cut by the Fed. The outlook for both currencies will depend on the outcome of upcoming economic reports and central bank decisions. Traders should monitor these developments closely to make informed decisions about their investments and trading strategies.