The Pound Sterling’s Recovery Stalls Against the US Dollar
- The Pound Sterling hits a two-week high near 1.2750 against the US Dollar.
- The US Dollar is set to end the week on a negative note.
- Investors anticipate a slower policy-easing cycle by the Bank of England compared to the US.
The Pound Sterling (GBP) experiences a setback after reaching a two-week high near 1.2750 against the US Dollar (USD) during Friday’s North American session. The GBP/USD pair retreats as the US Dollar gains momentum in a low-volume trading day due to Thanksgiving holidays. The US Dollar Index (DXY) sees a rebound after hitting a two-week low near 105.60.
Despite this, the US Dollar is on track to end the week with a nearly 1.5% decline. The correction in the US Dollar began on Monday following the nomination of Scott Bessent, a seasoned hedge fund manager, as Treasury Secretary by President-elect Donald Trump. This move led investors to reassess the ‘Trump trades’ as Bessent’s appointment was seen as a stabilizing factor for the economy.
Looking ahead, market sentiment towards the US Dollar will be influenced by expectations for the Federal Reserve’s interest rate decisions in the upcoming December meeting and beyond. Traders are pricing in a 66% probability of a 25 bps interest rate cut by the Fed in December, with further rate reductions expected in 2025.
Daily Digest Market Movers: Pound Sterling Trades Cautiously
- The Pound Sterling trades cautiously against major currencies despite expectations of a gradual rate cut by the Bank of England (BoE). Higher inflation in the UK economy, particularly in the services sector, prompts investors to anticipate a slower pace of rate cuts by the BoE.
- BoE Deputy Governor Clare Lombardelli warns about the risks of inflation exceeding the bank’s forecasts, with service sector inflation rising by 5%.
- The British currency shows weakness against the Japanese Yen (JPY) as market expectations for a rate hike by the Bank of Japan (BoJ) in December rise.
Technical Analysis: Pound Sterling Faces Selling Pressure
The Pound Sterling retreats after hitting a two-week high near 1.2750 against the US Dollar, facing selling pressure near the 20-day Exponential Moving Average (EMA) at 1.2725. The recovery in the GBP/USD pair was initiated from the upward-sloping trendline at 1.2550, following a significant fall from a two-year high above 1.3400.
The 14-day Relative Strength Index (RSI) shows signs of rebounding but maintains a downside bias. Support levels are expected near 1.2600 and 1.2500, while resistance lies at the 200-day EMA around 1.2830.
Analysis:
The Pound Sterling’s performance against the US Dollar reflects the market’s response to shifting economic conditions and policy decisions by central banks. The US Dollar’s correction and the Pound’s cautious trading indicate investor sentiment and expectations for future interest rate movements.
For individuals, understanding these dynamics can provide insights into currency fluctuations, potential impacts on international trade, and implications for investments. Monitoring central bank policies and economic indicators can help individuals make informed decisions regarding currency exchanges and financial planning.