Pound Sterling recovers on strong UK flash PMI
|- 9The Pound Sterling capitalizes on upbeat preliminary UK S&P Global/CIPS PMI for July.
- UK's Composite PMI beats estimates and the former release.
- The Fed is expected to pivot to policy normalization in September.
The Pound Sterling (GBP) bounces back against its major peers in Wednesday’s London session after upbeat preliminary S&P Global/CIPS Purchasing Managers’ Index (PMI) data for July. The Composite PMI came in higher at 52.7 than estimates of 52.6 and the former release of 52.3 due to an increase in activities in the manufacturing as well as service sectors. The Manufacturing and Services PMI expanded to 51.8 and 52.4, respectively, outperforming their former releases.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, "The first post-election business survey paints a welcoming picture for the new government, with companies operating across manufacturing and services, having gained optimism about the future, reporting a renewed surge in demand and taking on staff in greater numbers. Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut."
Earlier, the British currency was underperforming amid growing speculation that the Bank of England (BoE) will begin cutting interest rates in August. Market experts see the United Kingdom’s (UK) economy struggling to cooperate with BoE’s high interest rates. The consequences of a restrictive monetary policy stance are clearly visible in households’ spending, as the UK’s Retail Sales, a key measure of consumer spending that prompts inflationary pressures, contracted at a faster-than-expected pace in June.
Meanwhile, BoE officials refrain from endorsing rate cuts due to high inflation in the service sector. UK service inflation grew steadily by 5.7% in June.
Daily digest market movers: Pound Sterling recovers against major peers
- The Pound Sterling recovers to nearly 1.2900 against the US Dollar (USD) in European trading hours on Wednesday. The GBP/USD pair rebounds despite increasing risk aversion. Meanwhile, the US Dollar clings to gains ahead of a slew of United States (US) economic data. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near a weekly high at around 104.50.
- In Wednesday’s session, investors will also focus on the preliminary US S&P Global PMI data for July, which will be published at 13:45 GMT. The report is expected to show that the Manufacturing PMI expanded at a nominal pace of 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 of 54.4 from the prior release of 55.3. The economic data will convey the current economic health.
- This week, the main triggers for the US Dollar will be the preliminary annualized Q2 Gross Domestic Product (GDP) and the Personal Consumption Expenditures Price Index (PCE) data for June, which will be published on Thursday and Friday, respectively. The US economy is estimated to have grown by 1.9% from the former release of 1.4%.
- Investors will keenly focus on the core PCE inflation, the Federal Reserve’s (Fed) preferred inflation measure, to get fresh cues about when the central bank will start reducing interest rates. Currently, financial markets expect the Fed to begin lowering its key borrowing rates in September.
- Meanwhile, investors seek fresh developments on the US presidential elections in November. Market experts see Donald Trump winning the elections despite Democrats nominating Vice President Kamala Harris as their leader.
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 | 0.07% | -0.01% | -0.66% | 0.02% | 0.28% | 0.43% | -0.51% | |
| EUR | -0.07% | -0.08% | -0.75% | -0.05% | 0.22% | 0.35% | -0.57% | |
| USD | 0.01% | 0.08% | -0.65% | 0.04% | 0.28% | 0.44% | -0.48% | |
| JPY | 0.66% | 0.75% | 0.65% | 0.72% | 0.95% | 1.08% | 0.17% | |
| CAD | -0.02% | 0.05% | -0.04% | -0.72% | 0.24% | 0.42% | -0.54% | |
| AUD | -0.28% | -0.22% | -0.28% | -0.95% | -0.24% | 0.14% | -0.78% | |
| NZD | -0.43% | -0.35% | -0.44% | -1.08% | -0.42% | -0.14% | -0.93% | |
| CHF | 0.51% | 0.57% | 0.48% | -0.17% | 0.54% | 0.78% | 0.93% |
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 reclaims 1.2900
The Pound Sterling recovers after sliding below the crucial support of 1.2900 against the US Dollar. The GBP/USD pair declined to near the horizontal support plotted from the March 8 high near 1.2900, which used to be a resistance for the Pound Sterling bulls. The Cable has dropped near the 20-day Exponential Moving Average (EMA), which trades around 1.2860.
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 pair. On the other hand, the upward-sloping trendline from the April 22 low will act as a major support zone around 1.2750.
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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