The Pound Sterling Shows Signs of Recovery Against the US Dollar
- Investors anticipate a 50 bps interest rate cut by the Fed in November, boosting the Pound Sterling to near 1.3350 against the US Dollar.
- Key events to watch: Fed Powell’s speech on Thursday and PCE inflation data for August on Friday.
- BoE expected to follow a shallow monetary policy-easing cycle compared to the Fed.
In Thursday’s London session, the Pound Sterling (GBP) has seen a slight rebound from the crucial support level near 1.3300 against the US Dollar (USD). This correction comes after a sharp decline on Wednesday. The GBP/USD pair is finding support as investors show confidence in the Pound Sterling, driven by expectations of a more aggressive interest rate cut by the Federal Reserve (Fed) compared to the Bank of England (BoE) in the coming months.
Fed Expectations and Market Speculation
- The CME FedWatch tool indicates a predicted 75 bps reduction in the Fed’s key borrowing rates over the next two meetings, with one 50 bps cut and one 25 bps cut.
- Market data suggests a 61% probability of a larger 50 bps interest rate cut by the Fed in November, up from 39% the previous week.
Investors are closely monitoring speeches by Fed policymakers, including Chair Jerome Powell, for insights into future policy decisions. Powell emphasized data dependency in the last press conference following the 50 bps rate cut.
Economic Data Impact
- Market focus on the US PCE inflation data for August, to be released on Friday.
- Expectations of a Fed rate cut could strengthen with lower inflation figures and weaken with higher-than-expected data.
Market Sentiment and BoE Outlook
- GBP trades cautiously amid absence of UK economic data, influenced by market sentiment and BoE interest rate expectations.
- Favorable market mood driven by Chinese stimulus and Fed rate cut expectations reflect in strong investor risk appetite.
- BoE likely to implement one interest rate cut this year, with a shallower easing cycle due to concerns over persistent price pressures.
Technical Analysis: Pound Sterling’s Position Against the US Dollar
The Pound Sterling has climbed to around 1.3345 against the US Dollar in European trading, following a correction from Wednesday’s dip near 1.3300. The GBP/USD pair’s short-term outlook remains positive, supported by the 20-day Exponential Moving Average (EMA) trending upwards near 1.3216.
Recent strength in the Pound Sterling is evident from a recovery after correcting near a trendline from the December 28, 2023, high of 1.2828, with a breakout on August 21.
The 14-day Relative Strength Index (RSI) indicates active bullish momentum, with resistance expected near 1.3500 and key support at 1.3000.
Pound Sterling FAQs
- GBP: Oldest currency, fourth most traded in the world, with key trading pairs like GBP/USD and GBP/JPY.
- BoE’s Monetary Policy: Key factor influencing GBP value based on inflation and interest rate adjustments.
- Economic Data Impact: GDP, PMIs, employment, and Trade Balance influence Pound Sterling value.