The Pound Sterling Holds Strong Against the US Dollar Amidst Fed Interest Rate Cut Speculation
- The Pound Sterling remains near 1.3200 against the US Dollar as bets for a large interest-rate cut by the Fed surge.
- Investors anticipate the Bank of England (BoE) to maintain interest rates at 5% during Thursday’s decision.
- UK core CPI is expected to have accelerated to 3.5% in August.
In today’s London session, the Pound Sterling (GBP) shows resilience against the US Dollar (USD) despite a slight dip, holding onto gains near the critical support level of 1.3200. The GBP/USD pair’s outlook remains positive as the US Dollar faces pressure ahead of the Federal Reserve’s (Fed) upcoming monetary policy decision.
Fed Interest Rate Cut Expectations
The US Dollar Index (DXY) is hovering around a year-to-date (YTD) low near 100.50, reflecting strong market speculation that the Fed will embark on an aggressive policy-easing cycle. The Fed is widely anticipated to implement its first interest rate cut in over four years as it grapples with persistent inflation challenges stemming from pandemic-induced stimulus measures.
Former senior advisor to Fed Chairman Jerome Powell, Jon Faust, recently made dovish remarks to the Wall Street Journal (WSJ), suggesting a preference for a 50-basis-point interest rate cut. This sentiment has heightened expectations for a significant rate reduction, with market participants forecasting a 100-bps cut by year-end.
According to the CME FedWatch tool, the probability of a 50-bps interest rate cut in September has surged to 69% from 34% just a week ago.
Key Market Data
Investors will closely monitor the United States Retail Sales data for August, set to be released at 12:30 GMT today. Analysts expect a 0.2% growth in Retail Sales, a crucial indicator of consumer spending, following a 1% increase in July.
Daily Digest: Pound Sterling Awaits UK Inflation Data
- The Pound Sterling shows minor weakness against major currencies today as investors await the UK Consumer Price Index (CPI) data for August. The inflation figures, to be published on Wednesday, will heavily influence market expectations regarding the Bank of England’s interest rate trajectory, with the BoE expected to maintain rates on Thursday.
- Projections suggest a faster growth rate of 3.5% for annual core inflation in August, compared to 3.3% in July, while headline inflation is expected to remain steady at 2.2%. Strong inflation data may lead to a hold on interest rates, while softer figures could prompt a dovish stance from the BoE.
- Of particular interest in the CPI report is the Service inflation data, a key metric for BoE policymakers. July saw a significant deceleration in annual service inflation to 5.2%, marking a two-year low.
Technical Analysis: GBP/USD Holds Ground Near 1.3200
The Pound Sterling maintains its position near 1.3200 against the US Dollar during European trading hours. With the GBP/USD pair holding above the 20-day Exponential Moving Average (EMA) at 1.3100, the short-term outlook remains positive. Following a breakout on August 21, the Cable saw a significant uptrend from the trendline originating from the December 28, 2023, high of 1.2828.
The 14-day Relative Strength Index (RSI) is above 60.00, indicating potential for further bullish momentum if the oscillator remains at this level.
Resistance levels for the Cable are seen near the August 27 high of 1.3266 and the psychological barrier of 1.3500, while 1.3000 serves as a crucial support level.
Pound Sterling FAQs
Key Information on the Pound Sterling
- The Pound Sterling (GBP) is the oldest currency globally, dating back to 886 AD, and is the official currency of the United Kingdom.
- GBP is the fourth most traded currency in the world, accounting for 12% of all FX transactions, with major pairs including GBP/USD, GBP/JPY, and EUR/GBP.
Factors Influencing GBP Value
- Monetary policy decisions by the Bank of England are the primary drivers of GBP value, with interest rate adjustments aimed at maintaining price stability.
- Economic indicators such as GDP, PMIs, and employment data, as well as the Trade Balance, also impact the Pound Sterling’s performance.