The Pound Sterling’s Recovery and Economic Outlook
- The Pound Sterling consolidates after recovering slightly on Thursday as BoE’s Mann said services inflation needs to decline further for more rate cuts.
- The UK flash PMI report shows that business activity continued to expand in October but at a slower pace.
- Traders seem to be increasingly betting that Donald Trump will win the US presidential election.
The Pound Sterling (GBP) has shown resilience by holding onto Thursday’s gains against major currencies despite facing its fourth consecutive week of losses against the US Dollar. The recent recovery of the British currency is supported by positive developments such as hawkish remarks from Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann and sustained economic activity indicated by the UK flash S&P Global/CIPS Purchasing Managers Index (PMI) data for October.
BoE’s Catherine Mann’s Hawkish Stance
During a panel discussion at the International Monetary Fund (IMF) meetings, Catherine Mann, known for her hawkish views, expressed optimism about the soft inflation figures for September but emphasized the need for further moderation. She highlighted the importance of reducing service sector inflation to align with the BoE’s 2% target. Despite this, there is speculation in the market that the BoE may opt for additional rate cuts in November.
UK’s Business Activity Expansion
Thursday’s preliminary PMI report revealed that business activity in the UK continued to grow in both the manufacturing and service sectors in October, albeit at a slower pace compared to the previous month. While the overall growth rate was lower than expected, it outperformed the US and Eurozone, where manufacturing output is still contracting.
Market Sentiment and Economic Factors
- The Pound Sterling remains steady near 1.2970 against the US Dollar, supported by recent gains.
- Traders are increasingly favoring a potential victory for Donald Trump in the upcoming US presidential election, which could impact currency markets.
- Speculation suggests that a Trump administration may lead to higher tariffs and lower taxes, potentially benefiting the US Dollar.
- The Federal Reserve’s expected gradual interest rate cuts could limit any significant correction in the US Dollar.
Technical Analysis and Outlook
The Pound Sterling is trading near 1.2970 against the US Dollar, with support near the lower boundary of a Rising Channel chart formation. The short-term trend remains uncertain as the currency trades below the 50-day Exponential Moving Average (EMA).
The 14-day Relative Strength Index (RSI) indicates bearish momentum, with potential support near the 200-day EMA at 1.2845 and resistance at 1.3000 and the 20-day EMA at 1.3060.
Pound Sterling FAQs
The Pound Sterling (GBP) is the official currency of the United Kingdom, with historical significance and a key role in global foreign exchange markets. Understanding the factors influencing its value is crucial:
Monetary Policy and Interest Rates
The Bank of England’s monetary policy decisions, particularly regarding interest rates, play a significant role in shaping the value of the Pound Sterling. Adjustments in interest rates impact inflation and economic growth, influencing investor sentiment towards the currency.
Economic Data Releases
Economic indicators such as GDP, PMI reports, and employment data can provide insights into the health of the UK economy and impact the Pound Sterling’s value. Positive economic data can attract investment and support the currency, while weak data may lead to depreciation.
Trade Balance
The UK’s trade balance, reflecting the difference between exports and imports, also influences the Pound Sterling’s value. A positive trade balance indicates a strong economy and can strengthen the currency, while a negative balance may lead to depreciation.