Pound Sterling edges higher ahead of US core PCE inflation in focus
|- The Pound Sterling prints a fresh two-week low at 1.2845 against the US Dollar on Friday as investors turn cautious ahead of the US core PCE Price index.
- The BoE is expected to cut interest rates next week.
- Robust US Q2 GDP growth has improved the economic outlook.
The Pound Sterling (GBP) exhibits a steady performance against its major peers on Friday. The British currency is expected to remain on the sidelines as investors shift focus to the Bank of England’s (BoE) monetary policy meeting, which is scheduled for Thursday.
A Reuters poll on July 18-24 showed that more than 80% of economists said the BoE would announce a rate-cut decision in its August meeting for the first time in more than four years. The BoE will ditch its restrictive monetary policy framework, which it has been maintaining since the pandemic hit global markets. The BoE is expected to reduce its key borrowing rates by 25 basis points (bps) to 5% in the August meeting. However, traders see a 46% chance of the BoE pivoting to policy-normalization. It appears that the absence of BoE officials’ endorsement for rate cuts has limited BoE rate-cut expectations.
Despite the return of the annual headline Consumer Price Index (CPI) in the United Kingdom (UK) to the central bank’s target of 2%, BoE policymakers hesitate to support interest rate cuts amid worries about strong wage growth momentum that has been resulting in sticky price pressures in the service sector.
Also, signs of wage growth easing ahead remain absent due to the shortage of labor in the United Kingdom. The UK labor market has faced a shortage of workers for a long period due to voluntary retirements by individuals and the Brexit event.
Meanwhile, the UK’s economic prospects remain firm due to expanding activities in manufacturing as well as the service sector and political stability after Prime Minister Keir Starmer’s outright victory in parliamentary elections.
Daily digest market movers: Pound Sterling posts fresh two-week low against US Dollar
- The Pound Sterling rebounds gradually after posting a fresh two-week low at 1.2845 against the US Dollar (USD) in Friday’s London session. The GBP/USD pair faces sharp selling pressure amid uncertainty ahead of the United States (US) core Personal Consumption Expenditures price index (PCE) data for June, which will be published at 12:30 GMT.
- The core PCE inflation data, the Federal Reserve’s (Fed) preferred inflation measure, is estimated to have decelerated to 2.5% year-over-year from May’s reading of 2.6%, with monthly price pressures growing steadily by 0.1%.
- The scenario in which the underlying inflation declines expectedly or at a faster pace would be unfavorable for the US Dollar as it will cement expectations of early interest rate cuts by the Federal Reserve. On the contrary, hot inflation numbers would force traders to pare early rate-cut bets. According to the CME FedWatch tool, 30-day Federal Fund futures pricing data shows that the central bank will start reducing interest rates in September.
- The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, exhibits a subdued performance near 104.30. The US Dollar failed to capitalize on robust US Q2 Gross Domestic Product (GDP) growth as the impact was offset by subsiding price pressures. The US economy expanded at a robust pace of 2.8% in the second quarter, double the 1.4% growth recorded in the first quarter. Still, speculation for Fed rate cuts in September remained intact as GDP Price Index decelerated at a slower-than-expected pace to 2.3%.
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.
| GBP | EUR | USD | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| GBP | 0.05% | 0.14% | 0.58% | 0.06% | -0.23% | -0.01% | 0.35% | |
| EUR | -0.05% | 0.09% | 0.52% | 0.01% | -0.29% | -0.06% | 0.31% | |
| USD | -0.14% | -0.09% | 0.42% | -0.09% | -0.37% | -0.16% | 0.23% | |
| JPY | -0.58% | -0.52% | -0.42% | -0.52% | -0.77% | -0.57% | -0.19% | |
| CAD | -0.06% | -0.01% | 0.09% | 0.52% | -0.28% | -0.07% | 0.30% | |
| AUD | 0.23% | 0.29% | 0.37% | 0.77% | 0.28% | 0.23% | 0.62% | |
| NZD | 0.00% | 0.06% | 0.16% | 0.57% | 0.07% | -0.23% | 0.36% | |
| CHF | -0.35% | -0.31% | -0.23% | 0.19% | -0.30% | -0.62% | -0.36% |
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 stays on backfoot below 1.2900
The Pound Sterling remains on the back foot against the US Dollar after sliding below the crucial support of 1.2900. The GBP/USD pair trades in a Rising Channel pattern on a daily timeframe, in which each pullback move is considered as a buying opportunity by market participants. The Cable holds the key 20-day Exponential Moving Average (EMA), which trades around 1.2866.
The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded. However, the bullish bias remains intact.
On the upside, a two-year high near 1.3140 will be a key resistance zone for the Cable.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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