The Pound Sterling Shows Strength Against the US Dollar

  • The Pound Sterling (GBP) is performing well against major currencies, particularly the US Dollar, with rates nearing 1.3160.
  • The likelihood of the Fed cutting interest rates by an additional 75 bps by year-end has decreased significantly.
  • BoE Governor Andrew Bailey emphasizes the necessity for aggressive interest rate cuts.

The Pound Sterling is currently outperforming other currencies, but faces potential pressure due to escalating tensions between Iran and Israel, leading to a full-scale conflict following the assassination of Hezbollah leader Hassan Nasrallah. The resulting rise in oil prices due to the Middle East tensions can negatively impact economies heavily reliant on imported oil, leading to higher foreign outflows.

BoE’s Bailey Advocates Aggressive Interest Rate Cuts

BoE Governor Andrew Bailey’s recent comments on interest rates have added uncertainty to the Sterling’s outlook. In an interview with the Guardian newspaper, Bailey hinted at the possibility of the BoE taking a more proactive and forceful approach to lowering rates if inflation continues to ease. This dovish stance indicates a potential shift towards more aggressive rate cuts in the future.

In addition, BoE Chief Economist Huw Pill also expressed confidence in further rate cuts but cautioned against the risks of cutting rates too rapidly or too deeply.

Positive Economic Data for the Construction Sector

The revised S&P Global/CIPS Construction PMI estimate unexpectedly rose to 57.2, surpassing initial forecasts of 53.1. This positive data indicates growth in the construction sector, contributing to a more optimistic economic outlook.

Market Analysis: Pound Sterling Influenced by Market Sentiment

  • The Pound Sterling shows resilience near the 1.3100 support level against the US Dollar in Friday’s London session, rebounding to 1.3160 after a recent decline.
  • Investors are closely monitoring the upcoming US Nonfarm Payrolls (NFP) report for September, which will provide valuable insights into the US labor market’s health.
  • The NFP data is expected to reveal hiring numbers and wage growth, crucial factors influencing the Fed’s monetary policy decisions.
  • Market sentiment towards the Pound Sterling will be significantly impacted by the NFP report and its implications for the Fed’s future rate cuts.

Technical Analysis: Pound Sterling’s Key Support Level

The Pound Sterling is finding support near the 50-day Exponential Moving Average (EMA) at 1.3115 against the US Dollar. Despite a recent correction, the GBP/USD pair remains above key support levels.

The Relative Strength Index (RSI) indicates a weakening momentum within a specific range, suggesting potential downside movements.

Further declines could push the Pound Sterling towards the trendline at 1.3060, while upward movements may face resistance at the 20-day EMA near 1.3234.

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