- The Pound Sterling hit two-month lows against the US Dollar, then rebounded.
- GBP/USD looks to S&P Global PMIs and Bailey’s speeches for fresh trading impetus.
- Technically, any Pound Sterling upswings could be short-lived as long as the daily RSI stays bearish.
The Pound Sterling (GBP) fell for the third consecutive week against the US Dollar (USD), as the GBP/USD pair tested levels below the 1.3000 round level for the first time since mid-August before staging a late recovery.
Pound Sterling pounded on increased BoE rate cut bets
Markets turned more dovish on the Bank of England’s (BoE) monetary policy outlook while sealing in a smaller interest-rate cut by the US Federal Reserve (Fed), thus strengthening the US Dollar’s advance at the expense of the Pound Sterling.
The annual UK Consumer Price Index (CPI) inflation fell sharply to 1.7% in September from 2.2% in August, the lowest reading since April 2021 and driven down by lower airfares and petrol prices, the Office for National Statistics (ONS) said on Wednesday. The data came in below the expected 1.9% figure. On Tuesday, the ONS said that the UK pay growth, as measured by the Average Earnings Excluding Bonus, fell below 5.0% in the three months to August.
Falling inflation and softening labor market conditions made the case for rate reductions by the BoE at a faster pace. Following these data, interest rate futures showed investors were pricing a 90% chance of two BoE quarter-point rate cuts by the end of this year, up from roughly 80% at the start of the week.
Meanwhile, the unabated demand for the US Dollar exerted downward pressure on the pair. The bets for a 25 basis points (bps) Fed rate cut next month remained unfazed despite several dovish speeches from Fed policymakers and strong US Retail Sales data, allowing the buck to build on its recovery rally. US Retail Sales rose 0.4% in September after an unrevised 0.1% gain in August, the US Census Bureau said on Thursday.
The USD’s upsurge has lately been sponsored by the market’s optimism that Republican nominee and former US President Donald Trump is set to win the 2024 US presidential elections. Trump’s fiscal and trade policies are seen as inflationary and positive for the Greenback.
Further, rife Middle East geopolitical tensions also contributed to the bullish momentum in the safe-haven US Dollar. Amongst the latest Mideast developments, the Iran-backed militant group Hezbollah said it will escalate war with Israel after Israel’s Foreign Minister confirmed the killing of Hamas leader Yahya Sinwar on Thursday.
On Friday, the GBP/USD pair staged a rebound from two-month lows of 1.2974, as US Dollar buyers resorted to profit-taking after the solid performance during the week. Stronger-than-expected Britain’s Retail Sales data also aided the Pound Sterling recovery. United Kingdom Retail Sales unexpectedly rose by 0.3% in September, compared to a 0.3% decline expected, according to the latest figures from the ONS.
Week ahead: Eyes on PMIs and policymakers
Pound Sterling traders brace for a relatively data-light week, as the first half of the week is devoid of any high-impact data releases from both sides of the Atlantic.
However, the Fed and the BoE policymakers are scheduled to make their appearances, with BoE Governor Andrew Bailey due to speak on Tuesday and late Wednesday.
Thursday will feature the S&P Global preliminary Purchasing Managers Index (PMI) data for October from the US and the UK. The US Jobless Claims data will also be published on the same day. The BoE hawk Monetary Policy Committee member Catherine Mann is due to speak after Cleveland Fed President Beth Hammack’s speech.
The mid-tier US Durable Goods Orders data for September will be released on Friday, making it a quiet calendar heading into Saturday’s speech by BoE Governor Bailey.
Apart from the data releases and the central banks’ commentaries, investors will pay close attention to the market’s pricing of the outcome of the US elections while Mid-East geopolitical developments will also be in focus.
GBP/USD: Technical Outlook
The GBP/USD pair extended the previous week’s downside break of the critical 50-day Simple Moving Average (SMA), then at 1.3101.
The extended decline tested the 100-day SMA support near 1.2960, with more downside likely on the cards, as the 14-day Relative Strength Index (RSI) holds comfortably below the 50 level, currently near 44.
Therefore, any recovery attempt in the pair is likely to be sold off unless the Pound Sterling recaptures the 50-day SMA support-turned-resistance, now at 1.3132.
The next topside barrier is seen at the 21-day SMA at 1.3188. A meaningful uptrend could unfold on a sustained move above that level, opening the door for a test of the 1.3250 psychological barrier.
Pound Sterling will then target the 1.3300 round level should the bullish momentum gain traction.
On the flip side, a daily candlestick closing below the 100-day SMA at 1.2960 could expose the 200-day SMA cap at 1.2796.
Ahead of that, the June 12 high of 1.2861 could offer temporary respite to buyers.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.