The Pound Sterling Holds Strong Near 1.3400 Against the US Dollar Amid Expectations of Fed Interest Rate Cuts
- Fed Expected to Cut Interest Rates Again by 50 bps in November
- BoE Governor Andrew Bailey Foresees Gradual Decline in Interest Rates
- Investors Awaiting US PCE Inflation Data for Fresh Clues on Fed’s Interest Rate Prospects
In the current London session, the Pound Sterling (GBP) is slightly lower but maintains its position near 1.3400 against the US Dollar (USD). The GBP/USD pair remains steady as the US Dollar continues to weaken, approaching its yearly low, amidst expectations of another significant interest rate cut by the Federal Reserve (Fed) in one of the remaining policy meetings this year.
The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, is hovering around 100.20.
Fed Policy Easing and Rate Cut Expectations
Last week, the Fed initiated an interest rate cut of 50 basis points (bps), setting the range between 4.75% to 5.00%, aiming to bolster labor market strength. The Fed expressed confidence in inflation returning to the target of 2%. Among the 12 members of the Federal Open Market Committee (FOMC), Fed Governor Michelle Bowman supported a gradual rate-cut cycle with a standard 25 bps reduction.
Market expectations indicate that the Fed will further reduce borrowing rates by 75 bps by the end of the year, potentially with a 50 bps cut followed by a 25 bps adjustment. Data from the 30-day Federal fund futures pricing shows an increased probability of a double-dose 50 bps rate cut in November.
US PCE Inflation Data and Market Focus
Investors are eagerly anticipating the release of the US core Personal Consumption Expenditures Price Index (PCE) data for August on Friday. This data, considered the Fed’s preferred inflation measure, will provide insights into the central bank’s interest rate outlook. Economists predict a rise in the core annual inflation measure to 2.7% from 2.6% in July.
Market Impact: Pound Sterling Shows Strength as BoE Expects Gradual Rate Cuts
- The Pound Sterling demonstrates mixed performance against major currencies, with a positive outlook as investors anticipate gradual interest rate reductions by the Bank of England (BoE).
- BoE Governor Andrew Bailey’s remarks in an interview with Kent Messenger newspaper support the expectation of downward interest rate adjustments. Bailey stated, “I do think the path for interest rates will be downwards, gradually.”
- The UK’s annual headline inflation has remained near the 2% target in recent months. However, concerns persist over high inflation in the services sector, with the Service Consumer Price Index (CPI) rising to 5.6% in August from 5.2% in July.
Technical Analysis: Pound Sterling Strengthens Near 1.3400
The Pound Sterling continues to rise towards 1.3400 against the US Dollar during European trading hours. The GBP/USD pair’s short-term outlook remains positive, supported by upward sloping Exponential Moving Averages (EMAs) across different timeframes.
Recent price action saw the Cable strengthening after a corrective phase, followed by a breakout above a trendline from the December 28, 2023, high of 1.2828. The 14-day Relative Strength Index (RSI) is above 60.00, indicating strong bullish momentum.
Key levels to watch include resistance near 1.3500 and support at 1.3000 for the GBP/USD pair.
Pound Sterling FAQs
- Oldest Currency: Pound Sterling (GBP) is the oldest currency, dating back to 886 AD, and is the official currency of the United Kingdom.
- Monetary Policy Influence: The value of the Pound Sterling is significantly impacted by monetary policy decisions from the Bank of England, focusing on maintaining price stability and adjusting interest rates accordingly.
- Economic Indicators: Data releases such as GDP, PMIs, and employment figures play a crucial role in determining the strength of the Pound Sterling based on economic health.
- Trade Balance: The trade balance indicator reflects the difference between exports and imports, influencing the demand and value of the Pound Sterling.