The Pound Sterling Surges Against the US Dollar
- The Pound Sterling (GBP) has seen a significant increase, reaching near 1.3160 against the US Dollar.
- Investors are anticipating the Bank of England (BoE) to maintain interest rates at 5% during its upcoming meeting.
- Traders are divided on the potential size of the Federal Reserve’s (Fed) interest-rate cut.
In Monday’s London session, the Pound Sterling soared close to 1.3160 against the US Dollar. This surge is driven by positive market sentiment and the belief among investors that the BoE’s approach to policy easing will be less aggressive compared to the Fed’s strategy.
Market Speculation and Interest Rate Cut
The Fed is expected to initiate interest rate cuts starting Wednesday, but traders are uncertain about whether the cut will be 25 or 50 basis points (bps). The probability of a 50 bps rate reduction has risen to 61% from 30% a week ago, as indicated by the CME FedWatch tool.
Expectations for a substantial interest rate cut from the Fed have been reinforced by recent economic data, such as the Producer Price Index (PPI) report for August, which showed a faster-than-expected deceleration in producer inflation to 1.7%. Media reports have also contributed to the belief that the Fed may opt for a larger cut.
Upcoming Data and Market Focus
Before the Fed’s policy announcement, market attention will be on the US Retail Sales data for August, set to be released on Tuesday. The expected growth rate of 0.2% in retail sales for August is lower than the 1.0% increase observed in July.
The Pound Sterling’s Strong Performance
- The Pound Sterling is showing strength against major currencies at the beginning of the week, supported by increased demand for riskier currencies and a weakening US Dollar.
- The US Dollar Index (DXY), tracking the Greenback’s value against six major currencies, hit a weekly low near 100.80 due to strong prospects of a significant rate cut by the Fed.
- In the UK, upcoming Consumer Price Index (CPI) data for August and the BoE’s monetary policy decision will influence the Pound Sterling’s direction.
Economic Indicator Focus
Economists anticipate growth in the annual UK core CPI by 3.5% from 3.3% in July, with headline inflation rising steadily by 2.2%. Market participants expect the BoE to maintain interest rates at 5% and predict only one additional rate cut for the rest of the year based on current data.
Technical Analysis of Pound Sterling
The Pound Sterling has climbed near 1.3160 against the US Dollar, extending its recovery and finding support at the 20-day Exponential Moving Average (EMA) around 1.3080. The Relative Strength Index (RSI) at 60.00 suggests potential for further bullish momentum if it surpasses this level.
Resistance levels for the GBP/USD pair are anticipated near 1.3200 and 1.3500, while crucial support lies at 1.3000.
Upcoming Economic Event
The upcoming Fed Interest Rate Decision on Wednesday will have a significant impact on global markets. The Fed’s decision on interest rates influences the value of the US Dollar and attracts foreign capital inflows. Market participants will closely monitor the Fed’s statement for hints on future interest rate moves.