The Pound Sterling Soars to Near 1.3380 Against the US Dollar

  • Expectations of BoE’s Shallow Policy-Easing Cycle Drive GBP Higher
  • UK Business Activity Slows Down in September, According to Flash Estimate
  • Traders Increase Fed 50 bps Rate Cut Bets for November

The Pound Sterling (GBP) continues its upward trajectory against major currencies, particularly the US Dollar, fueled by investor optimism surrounding the Bank of England’s (BoE) approach to monetary policy adjustments. Market sentiment suggests that the BoE’s policy-easing cycle will be more restrained compared to other central banks within the Group of Seven (G-7) nations.

BoE’s Interest Rate Outlook and Inflation Trends

  • Market expectations point towards another interest rate cut by the BoE before the year ends, potentially in one of the two remaining monetary policy meetings. The high inflation rate in the UK’s service sector is a key factor influencing this less-dovish outlook.
  • Annual service inflation, closely monitored by BoE officials, surged to 5.6% in August from 5.2% in July, highlighting inflationary pressures.
  • BoE Governor Andrew Bailey’s recent remarks during the European trading session indicated a gradual approach to the policy-easing cycle.

UK Economic Activity and PMI Data

Flash UK S&P Global/CIPS Purchasing Managers Index (PMI) data for September revealed a slight dip in overall private business activity, dropping to 52.9 from 53.8 in August. This decline was attributed to a faster-than-expected slowdown in both manufacturing and service sector activities.

Market Dynamics: Pound Sterling Continues Advancing

  • The GBP extends its winning streak against the USD for the fifth consecutive trading day, breaching the 1.3350 mark. This surge is accompanied by a weakening US Dollar amid speculations of a 50 basis points (bps) rate cut by the Federal Reserve (Fed) in November.
  • The Fed initiated its rate cut cycle in its recent meeting, reducing key borrowing rates by 50 bps to a target range of 4.75%-5.00% to support employment and price stability.
  • Market indicators suggest a higher probability of a 50 bps rate cut by the Fed in November, shifting from 29% to close to 51% in a week.
  • Upcoming focus on US Personal Consumption Expenditures Price Index (PCE) data for August, with expectations of a 2.7% growth in the core PCE price index.

Technical Analysis: Pound Sterling on the Rise

GBP climbs to 1.3380 against the USD in European trading hours, supported by a positive outlook. Short-to-long-term Exponential Moving Averages (EMAs) are trending upwards, indicating a strong momentum for the GBP/USD pair.

Recent strengthening of the Cable after a corrective phase aligns with bullish sentiment, with the 14-day Relative Strength Index (RSI) above 60.00, signaling active bullish momentum.

Key levels to watch include resistance near 1.3500 and crucial support at 1.3000 for the GBP/USD pair.

Pound Sterling FAQs

The Pound Sterling (GBP) is the official currency of the United Kingdom, dating back to 886 AD. It is a significant player in the foreign exchange market, accounting for 12% of all transactions globally, with key trading pairs like GBP/USD and GBP/JPY. The Bank of England’s monetary policy decisions, economic indicators, and trade balance significantly impact the value of GBP.

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