The Pound Sterling Struggles Against the US Dollar as UK Inflation Slows
- The Pound Sterling (GBP) trades below 1.3000 against the US Dollar as slowing UK inflation fuels Bank of England’s dovish bets.
- UK service inflation slowed to 4.9%, the lowest level since May 2022.
- Growing speculation of a Trump victory in the US presidential elections has strengthened the US Dollar.
In the world of finance, the Pound Sterling bears are taking a moment to breathe after the recent slide to near 1.2970 against the US Dollar. However, the outlook for the GBP/USD pair remains vulnerable as the US Dollar continues to rise, with traders pricing out the possibility of large rate cuts by the Federal Reserve (Fed) in November.
The US Dollar Gains Strength
The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has reached a fresh over 10-week high near 103.60. The market sentiment suggests that the Fed is unlikely to continue with significant rate cuts, as recent data on the US labor market for September indicates resilience.
Market expectations, as indicated by the CME FedWatch tool, show that interest rates are expected to be cut by 25 basis points (bps) in both November and December policy meetings.
On the other hand, the speculation of former US President Donald Trump winning the upcoming US presidential elections has bolstered the US Dollar. Investors anticipate a Trump administration to introduce looser financial conditions, higher import tariffs, and tax cuts.
Market Focus on US Retail Sales Data
Investors will be closely watching the monthly US Retail Sales data for September, scheduled for release at 12:30 GMT during Thursday’s US session. Economists expect a growth of 0.3% in Retail Sales, a crucial measure of consumer spending.
Market Movers: Pound Sterling Faces Challenges
- The Pound Sterling is struggling to gain ground against major peers after a significant sell-off on Wednesday, following the release of UK Consumer Price Index (CPI) data for September.
- Annual headline inflation in the UK decelerated to 1.7%, below the Bank of England’s (BoE) target of 2%, while core CPI rose by 3.2%, lower than expected.
- UK’s service inflation, a key indicator for BoE’s interest rate decisions, fell to 4.9%, further strengthening dovish bets.
- The decline in inflationary pressures has led traders to price in a 25 bps interest rate cut in the remaining policy meetings of the year.
Technical Analysis: Pound Sterling Under Pressure
The Pound Sterling has dipped below the psychological level of 1.3000 against the US Dollar, indicating a bearish trend. The near-term outlook for the GBP/USD pair remains uncertain, with key moving averages sloping downwards.
The recent downside move in the Relative Strength Index (RSI) below 40.00 suggests a growing bearish momentum. The 200-day EMA near 1.2840 serves as a major support level, while resistance is expected near the 1.3100 mark.
Economic Indicator: Core Consumer Price Index (YoY)
The UK Core Consumer Price Index (CPI), released monthly by the Office for National Statistics, measures consumer price inflation and is a key indicator for inflation and purchasing trends. A high reading is seen as bullish for the Pound Sterling, while a low reading is considered bearish.