Pound Sterling weakens ahead of preliminary UK/US PMI
|- The Pound Sterling falls sharply against the US Dollar as BoE rate-cut bets surge.
- Weak UK Retail Sales lift bets supporting BoE rate cuts in August.
- Investors await the preliminary US/UK S&P Global PMI data for July.
The Pound Sterling (GBP) slides below the key support level of 1.2900 against the US Dollar (USD) in Tuesday’s London session. The GBP/USD pair weakens as the US Dollar (USD) advances due to growing speculation that Donald Trump will win the United States (US) presidential elections in November. The US Dollar Index (DXY), which tracks the Greenback’s value, against six major currencies, jumps to near104.50.
This week, investors will focus on the US preliminary S&P Global Purchasing Managers Index (PMI) for July, Q2 Gross Domestic Product (GDP), and Durable Goods Orders and Personal Consumption Expenditures Price Index (PCE) data for June. The economic data could provide fresh cues about when the US Federal Reserve (Fed) will start reducing interest rates this year.
Economists expect the Manufacturing PMI, scheduled on Wednesday, to have expanded at a nominal pace to 51.7 from June’s reading of 51.6. The Services PMI, a measure of activities in the service sector, is estimated to have expanded at a slower pace to 54.4 from the prior release of 55.3.
According to the CME FedWatch tool, 30-day Federal Fund futures show the central bank beginning to lower its key borrowing rates from their current levels in the September meeting. The Fed is also expected to cut interest rates again in November or December.
Daily digest market movers: Pound Sterling slumps against US Dollar
- The Pound Sterling weakens against its major peers, except the Australian Dollar (AUD) and the New Zealand Dollar (NZD) amid improved speculation that the Bank of England (BoE) will start cutting its key interest rates from the August meeting. Asia-Pacific currencies have been beaten hard due to their strong linkage with China’s economic outlook. Investors have raised concerns over the economic outlook of the world’s second-largest nation due to weaker-than-expected Q2 Gross Domestic Product (GDP) growth.
- The expectations for the BoE to pivot to policy normalization increase as higher interest rates have narrowed pockets of individuals. The recent UK Retail Sales report for June showed that receipts at retail stores unexpectedly contracted by 0.2% year-over-year, which were expected to have grown at a similar pace. Monthly Retail Sales declined at a faster-than-expected pace by 1.2%.
- Meanwhile, expected deceleration in Average Earnings, a key measure of wage growth momentum that prompts inflation in the service sector, has also boosted expectations of BoE rate cuts. Though the wage growth measure has slowed, as expected, in three months ending in May, it is still higher than what needs to be consistent to propel officials’ confidence for rate cuts.
- Going forward, the major trigger for the Pound Sterling will be the UK preliminary S&P Global/CIPS PMI data for July, which will be published on Wednesday. The report is expected to show that the Manufacturing PMI expanded at a faster pace of 51.1 from the former release of 50.9. The Composite PMI is estimated to have increased to 52.6 from 52.3 in May.
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 New Zealand Dollar.
| GBP | EUR | USD | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| GBP | -0.05% | -0.30% | -0.91% | -0.25% | -0.05% | -0.03% | -0.15% | |
| EUR | 0.05% | -0.30% | -0.88% | -0.22% | -0.03% | -0.01% | -0.11% | |
| USD | 0.30% | 0.30% | -0.62% | 0.04% | 0.26% | 0.29% | 0.17% | |
| JPY | 0.91% | 0.88% | 0.62% | 0.67% | 0.87% | 0.89% | 0.77% | |
| CAD | 0.25% | 0.22% | -0.04% | -0.67% | 0.21% | 0.23% | 0.13% | |
| AUD | 0.05% | 0.03% | -0.26% | -0.87% | -0.21% | 0.02% | -0.10% | |
| NZD | 0.03% | 0.00% | -0.29% | -0.89% | -0.23% | -0.02% | -0.12% | |
| CHF | 0.15% | 0.11% | -0.17% | -0.77% | -0.13% | 0.10% | 0.12% |
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 falls below 1.2900
The Pound Sterling dives below the round-level support of 1.2900 against the US Dollar. The GBP/USD pair weakened after facing a sell-off from a fresh annual high of 1.3044 last Wednesday.
The Cable is expected to find interim support near the upward-sloping 20-day Exponential Moving Average (EMA) around 1.2860. The 14-day Relative Strength Index (RSI) declines after turning slightly overbought and is expected to find a cushion near 60.00.
On the upside, a two-year high near 1.3140 will be a key resistance zone for the Cable. On the other hand, the March 8 high near 1.2900 will be a key support for the Pound Sterling bull.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.