Analyzing the Pound Sterling’s Performance Against the US Dollar
- The Pound Sterling (GBP) remains below 1.2600 against the US Dollar (USD) as investors await key US economic data releases, including the PCE inflation data.
- The recent FOMC minutes did not provide clear signals about the future interest rate trajectory.
- BoE Lombardelli emphasizes the need for evidence of a slowdown in inflation before considering an interest rate cut.
Current Market Situation
In the London session on Wednesday, the GBP/USD pair is trading within a narrow range below 1.2600 as the USD remains subdued ahead of the release of the US Personal Consumption Expenditure Price Index (PCE) data for October at 13:30 GMT.
Key Economic Data Expectations
Economists anticipate an uptick in the core PCE inflation data, excluding volatile items like food and energy, to 2.8% from 2.7% year-on-year in September. Monthly figures are also projected to show a steady increase of 0.3%.
Impact on Interest Rate Expectations
The core PCE inflation data holds significant importance as it is the Federal Reserve’s preferred gauge for inflation and influences market expectations regarding interest rate decisions. The upcoming data will shape expectations for the Fed’s potential actions in the December meeting.
Market sentiment indicates a rising probability of a 25 basis points interest rate cut in the December meeting, currently standing at 65% compared to 56% a week earlier.
FOMC Minutes and Policy Outlook
Following the release of the FOMC minutes from the November 7 meeting, dovish sentiments have intensified. While the minutes did not offer clear guidance on interest rates, discussions within the committee hinted at a potential pause in rate cuts if inflation remains elevated.
However, some officials emphasized the need for continued policy easing if economic conditions deteriorate, reflecting divergent views within the Fed.
Key Data Releases to Watch
Investors are closely monitoring the revised Q3 GDP growth estimates, Durable Goods Orders, Personal Spending data for October, and Initial Jobless Claims for the week ending November 22.
Impact of US Trade Policies on GBP
The Pound Sterling faces uncertainties amidst concerns over US tariffs and their potential impact on UK exports. Bank of England Deputy Governor Clare Lombardelli highlighted the risks associated with trade barriers, emphasizing the negative implications for economic growth.
BoE Interest Rate Outlook
Regarding future interest rate decisions, Lombardelli stressed the importance of observing evidence of cooling inflation pressures before supporting further rate cuts. Market expectations suggest the BoE will maintain interest rates at 0.75% in the upcoming December meeting.
Technical Analysis of GBP/USD
The GBP/USD pair is currently hovering below the upward-sloping trendline near 1.2550, with a bearish outlook supported by downward-sloping EMAs and RSI indicating downside momentum.
Key support levels include May’s low at 1.2446, while resistance is expected at the November 20 high around 1.2720.
Understanding Pound Sterling FAQs
- The Pound Sterling is the oldest currency globally, with the GBP serving as the official currency of the UK and accounting for a significant share of global FX transactions.
- Monetary policy decisions by the Bank of England play a crucial role in influencing GBP value, with interest rates adjustments being a primary tool for maintaining price stability.
- Economic indicators and data releases, such as GDP, PMIs, and Trade Balance, impact the Pound Sterling’s performance in the forex market.