Pound Sterling rises to near 1.2700 with focus on US data, UK elections outcome
|- The Pound Sterling strengthens against the US Dollar as Fed’s Powell seems confident that disinflation has resumed.
- UK elections outcome will be the major trigger for the Pound Sterling.
- The US Dollar will dance to the tunes of US ISM Servies PMI, the ADP Employment Change for June, and the FOMC minutes.
The Pound Sterling (GBP) extends its upside to near the round-level resistance of 1.2700 in Wednesday’s London session after a sharp recovery from the three-day low of 1.2615 on Tuesday. The GBP/USD pair exhibits strength as the near-term outlook of the US Dollar (USD) has become uncertain after the speech from Federal Reserve (Fed) Chair Jerome Powell at the European Central Bank (ECB) Forum on Central banking on Tuesday prompted optimism on rate cuts.
Powell said recent data suggests that the disinflation process has resumed, though we need more good inflation data before reducing interest rates. Powell added that risks to inflation are more balanced. He also said that an unexpected weakness in the labor market could force them to react on interest rates.
Powell’s improved confidence in the progress in disinflation has kept speculation on rate cuts in September firm. Going forward, the major trigger for the US Dollar will be the United States (US) Nonfarm Payrolls (NFP) report for June, which will be published on Friday.
In Wednesday’s session, investors will keenly focus on the ADP Employment Change, the US ISM Services Purchasing Managers Index (PMI) data for June, and the Federal Open Market Committee (FOMC) minutes for the June meeting.
The ADP Employment report is expected to show that private sector employers hired 160K job-seekers, slightly higher than May’s reading of 152K. The ISM Services PMI is estimated to have expanded at a slower pace of 52.5 from the former release of 53.8. Investors will also focus on the Prices Paid, a sub-component of Services PMI, which indicates cost pressures in the service sector.
The FOMC minutes will provide cues about when the Fed will start reducing interest rates.
Daily digest market movers: Pound Sterling struggles to outperform Australian Dollar
- The Pound Sterling outperforms the majority of its peers except the Australian Dollar (AUD). The Australian Dollar is upbeat as expectations for rate cuts by the Reserve Bank of Australia (RBA) have been postponed to April 2025 from February of the same year projected earlier.
- The British currency clings to gains as Bank of England (BoE) policymakers worry about stubborn inflation in the United Kingdom (UK) service sector, which has been refraining from leaning towards policy easing. While inflation in other sectors has declined significantly due to weak demand from domestic and overseas markets.
- Due to the absence of top-tier economic data this week, investors will majorly focus on headlines relating to the UK elections, which kick off on Thursday. The UK Prime Minister Rishi Sunak-led Conservative Party is expected to suffer a defeat from the opposition Labor Party.
- New government formation is expected to deliver expansionary fiscal policies, which could boost price pressures and force the BoE to maintain a restrictive stance on interest rates for a longer period than previously expected.
Pound Sterling Price Today:
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.08% | 0.23% | -0.04% | -0.11% | -0.07% | -0.01% | |
| EUR | 0.12% | 0.06% | 0.37% | 0.11% | -0.04% | 0.10% | 0.15% | |
| GBP | 0.08% | -0.06% | 0.33% | 0.05% | -0.08% | 0.05% | 0.08% | |
| JPY | -0.23% | -0.37% | -0.33% | -0.27% | -0.35% | -0.21% | -0.27% | |
| CAD | 0.04% | -0.11% | -0.05% | 0.27% | -0.11% | -0.02% | 0.03% | |
| AUD | 0.11% | 0.04% | 0.08% | 0.35% | 0.11% | 0.13% | 0.18% | |
| NZD | 0.07% | -0.10% | -0.05% | 0.21% | 0.02% | -0.13% | 0.04% | |
| CHF | 0.00% | -0.15% | -0.08% | 0.27% | -0.03% | -0.18% | -0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling jumps to near 1.2700
The Pound Sterling trades sideways against the US Dollar after recovering sharply from the round-level support of 1.2600. The GBP/USD pair moves higher above the 61.8% Fibonacci retracement support at 1.2667, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300.
The Cable rises above the 20-and 50-day Exponential Moving Averages (EMAs) near 1.2680 and 1.2666, respectively, suggesting that the near-term outlook is bullish.
The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating indecisiveness among market participants.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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