The Pound Sterling (GBP) continues its upward trend, reaching near 1.3150 against the US Dollar (USD) as traders increase bets on a 50 bps interest rate cut by the Federal Reserve (Fed) at next week’s meeting. This surge comes after the US Producer Price Index (PPI) data for August indicated a slowdown, leading to expectations of aggressive rate cuts by the Fed.
The US Dollar Index (DXY) has fallen to around 101.00 as a result of this news.
The PPI report revealed that annual headline producer inflation grew by 1.7%, lower than the expected 1.8% and July’s 2.1%. The core PPI, which excludes food and energy prices, rose by 2.4%, slightly below the projected 2.5%. Monthly headline and core PPI also saw faster growth rates of 0.2% and 0.3%, respectively.
Market sentiment for a 50 bps rate cut by the Fed in September has surged to 43% from 14% prior to the PPI data release, according to the CME FedWatch tool.
Investors are now awaiting the preliminary Michigan Consumer Sentiment Index data for September to gauge consumer sentiment in the US.
Analysis: Pound Sterling Outperforms US Dollar
- The Pound Sterling’s strong performance is driven by expectations of aggressive Fed rate cuts and the likelihood of the Bank of England (BoE) maintaining interest rates next week.
- Historically, aggressive Fed policy changes have boosted risky assets, as seen in the S&P 500 futures’ gains after a bullish Thursday.
- Reuters poll indicates that the BoE is expected to hold rates steady at 5.0% in the upcoming meeting.
- Next focus for the Pound Sterling is the UK Consumer Price Index (CPI) data for August, which could impact future monetary policy decisions.
Technical Analysis: Pound Sterling Rebounds from 1.3000
The Pound Sterling has seen a strong recovery to near 1.3150 against the US Dollar, supported by strong buying interest and the 20-day Exponential Moving Average (EMA) near 1.3080.
The 14-day Relative Strength Index (RSI) remains in a neutral range, with potential for a bullish breakout above 60.00.
Resistance levels for the Pound Sterling are around 1.3200 and 1.3500, while 1.3000 acts as crucial support.
Overall, the Pound Sterling’s performance is influenced by Fed and BoE policy decisions, economic data releases, and trade balance indicators.