The Pound Sterling Weakens Amid Economic Uncertainty
The Pound Sterling (GBP) faced a decline against major currencies following the recent Monetary Policy Hearing and renewed geopolitical tensions. Here’s an in-depth look at the factors influencing this downward trend:
Monetary Policy Hearing and Interest Rate Cut
- Bank of England (BoE) policymakers, including Governor Andrew Bailey, cut interest rates by 25 basis points to 4.75% due to faster-than-expected disinflation.
- Concerns over persistent upside risks to inflation were raised, especially regarding services inflation levels.
Geopolitical Tensions
The Pound Sterling also faced selling pressure due to escalating tensions between Russia and Ukraine, with the potential for geopolitical unrest impacting currency values.
Market Expectations and Economic Indicators
- Investors are closely monitoring the Consumer Price Index (CPI) data for October to gauge future interest rate decisions.
- There is an 80% expectation of another 25 basis point interest rate cut by the BoE in December, reflecting market sentiments.
- Analysts predict a rise in headline inflation and steady growth in core CPI, excluding volatile components.
Market Analysis: Impact on Pound Sterling and US Dollar
The Pound Sterling’s retreat against the US Dollar (USD) is influenced by various factors, including:
US Economic Outlook
- Anticipation of inflationary pressures and economic growth under President-elect Donald Trump’s agenda is strengthening the US Dollar.
- Improving economic data and market sentiment have reduced expectations of a December interest rate cut by the Federal Reserve.
- Nomura predicts a pause in the Fed’s policy-easing cycle in December, with potential rate cuts in March and June next year.
Technical Analysis: Pound Sterling Performance
The Pound Sterling’s struggle to maintain ground near 1.2600 against the US Dollar reflects ongoing bearish momentum, with key technical indicators showing:
- The GBP/USD pair trading below the 200-day Exponential Moving Average (EMA) indicates downward pressure.
- A Relative Strength Index (RSI) near 30.00 suggests a strong bearish trend.
- Support at 1.2500 and resistance at the 200-day EMA are critical levels for Pound Sterling’s price movement.
Summary and Economic Indicator Forecast
The Core Consumer Price Index (CPI) data for the UK is a vital indicator for measuring inflation and consumer purchasing trends. A high reading is bullish for the Pound Sterling, while a low reading is bearish. Investors should closely follow upcoming economic events to make informed decisions in the volatile market environment.