Pound Sterling gains as UK Labour Party gains majority, Fed rate-cut bets rise
|- The Pound Sterling remains firm against the US Dollar as expectations for Fed rate cuts in September grew further.
- Keir Starmer’s historic victory in UK parliamentary elections has brought political stability.
- This week, investors will focus on the UK monthly GDP for May and the US CPI for June.
The Pound Sterling (GBP) outperforms its major peers in Monday’s American session. The near-term outlook of the British currency strengthens as Keir Starmer-led Labour Party gained an outright majority against Rishi Sunak-led Conservative Party in the United Kingdom’s (UK) parliamentary elections. The victory of the Labour Party with an absolute majority has brought political stability to the economy, which has resulted in a sheer strength in UK financial markets.
Uncertainty over the Bank of England’s (BoE) interest-rate outlook remains high even though the annual headline inflation has returned to the desired rate of 2%. Financial markets currently see a 50% chance that the BoE will begin reducing interest rates from the August meeting.
On the contrary, BoE policymaker Jonathan Haskel advocated for keeping interest rates on hold at their current levels until there is more certainty that underlying inflationary pressures have subsided sustainably, Reuters reported.
This week, investors will keenly focus on the UK monthly Gross Domestic Product (GDP) and the factory data for May, which will be published on Thursday. The UK economy is estimated to have expanded by 0.2% after remaining unchanged in April.
Daily digest market movers: Pound Sterling rises as BoE Haskel holds its hawkish tone
- The Pound Sterling holds gains to near 1.2800 against the US Dollar (USD) in Monday’s European session. The GBP/USD pair strengthens as the US Dollar weakens after the United States (US) Nonfarm Payrolls (NFP) report for June pointed to moderating labor market conditions.
- The US NFP report indicated that labor hiring was not as strong in April and May as reported earlier. A revised reading of the above-mentioned months showed that the economy created 111K fewer jobs than previously estimated. The Unemployment Rate unexpectedly rose to 4.1% from estimates and the prior month of 4.0%.
- Signs of loosening labor market strength boost expectations of early rate cuts by the Federal Reserve (Fed). Officials have reiterated that they want to see inflation declining for months before cutting interest rates. However, Fed Chair Jerome Powell said last week that an unexpected weakness in the labor market could force policymakers to react on interest rates sooner.
- Also, Average Hourly Earnings, a measure of wage growth that drives service inflation and consumer spending, softened expectedly on a monthly and annual basis.
- According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the probability of rate cuts in September has increased to 75.8% from 64% recorded a week ago. The data also shows that the Fed will deliver subsequent rate cuts in the November or December meeting.
- This week, investors will pay close attention to the US Consumer Price Index (CPI) data for June, which will be published on Thursday. Economists see the annual core CPI, which strips off volatile food and energy prices, to have grown steadily by 3.4%.
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 | 0.13% | 0.17% | 0.27% | 0.13% | 0.18% | 0.26% | 0.19% | |
| EUR | -0.13% | 0.25% | 0.37% | 0.18% | 0.25% | 0.33% | 0.29% | |
| USD | -0.17% | -0.25% | 0.11% | -0.04% | 0.19% | 0.08% | 0.04% | |
| JPY | -0.27% | -0.37% | -0.11% | -0.16% | 0.08% | 0.12% | -0.05% | |
| CAD | -0.13% | -0.18% | 0.04% | 0.16% | 0.19% | 0.12% | 0.07% | |
| AUD | -0.18% | -0.25% | -0.19% | -0.08% | -0.19% | 0.08% | 0.01% | |
| NZD | -0.26% | -0.33% | -0.08% | -0.12% | -0.12% | -0.08% | -0.07% | |
| CHF | -0.19% | -0.29% | -0.04% | 0.05% | -0.07% | -0.01% | 0.07% |
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 gains ground above 78.6% Fibo retracement
The Pound Sterling trades close to a fresh three-week high at 1.2820 against the US Dollar. The GBP/USD pair has climbed above the 78.6% Fibonacci retracement at 1.2770, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300.
The pair rises above the 20-day and 50-day Exponential Moving Averages (EMAs) near 1.2695 and 1.2675, respectively, suggesting that the near-term outlook is bullish.
The 14-day Relative Strength Index (RSI) rises above 60.00. A sustained move above this level would shift momentum towards the upside.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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