- The Pound Sterling refreshes weekly high at 1.3150 against the US Dollar as traders raise bets for a Fed 50 bps interest rate cut for next week’s meeting.
- Slowed US annual PPI for August prompted the Fed’s sizable rate cut prospects.
- Investors expect that the BoE is unlikely to cut interest rates next week.
The Pound Sterling (GBP) holds gains above 1.3100 against the US Dollar (USD) in Friday’s North American session. The GBP/USD pair remains firm as the US Dollar (USD) falls sharply after the United States (US) Producer Price Index (PPI) data for August prompted market expectations for the Federal Reserve (Fed) to begin reducing interest rates next week aggressively.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides further to near 101.00.
The PPI report showed that the annual headline producer inflation rose by 1.7%, slower than the estimates of 1.8% and July’s print of 2.1%. In the same period, the core PPI – which excludes volatile food and energy prices – grew steadily by 2.4%. Investors expected the core PPI to have accelerated to 2.5%. Meanwhile, the monthly headline and core PPI rose at a faster pace of 0.2% and 0.3%, respectively.
According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September has increased sharply to 43% from the 14% before the US PPI data release.
In Friday’s session, investors will focus on the preliminary Michigan Consumer Sentiment Index data for September. The sentiment data is estimated to have remained almost steady at 68.0 from the prior release of 67.9.
Daily digest market movers: Pound Sterling remains firm against US Dollar
- The Pound Sterling exhibits a strong performance against its major peers on Friday. The British currency strengthens on multiple tailwinds. Growing speculation for the Fed to reduce interest rates aggressively has improved market sentiment. In addition, firm expectations for the Bank of England (BoE) to follow a shallow policy-easing cycle have also strengthened the Pound Sterling.
- Historically, the scenario of the Fed pivoting to policy-normalization aggressively improves the appeal of risky assets. S&P 500 futures have posted nominal gains in the Asian session after a bullish Thursday, suggesting an improvement in investors’ risk appetite.
- According to a Reuters poll, the BoE is unlikely to cut interest rates in its next policy meeting, scheduled for next week. All 65 economists in a Reuters poll said the BoE would likely hold rates at 5.0% on Thursday after cutting from a 16-year high of 5.25% in August.
- Meanwhile, the next major trigger for the Pound Sterling will be the United Kingdom (UK) Consumer Price Index (CPI) data for August, which will be published on Wednesday. The latest BoE forecast shows that one-year forward UK annual headline inflation will remain at 2.7%.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | 0.03% | -0.66% | 0.03% | 0.30% | 0.16% | -0.52% | |
| EUR | 0.08% | 0.09% | -0.59% | 0.10% | 0.38% | 0.31% | -0.43% | |
| GBP | -0.03% | -0.09% | -0.68% | -0.02% | 0.27% | 0.23% | -0.53% | |
| JPY | 0.66% | 0.59% | 0.68% | 0.71% | 0.97% | 0.90% | 0.17% | |
| CAD | -0.03% | -0.10% | 0.02% | -0.71% | 0.25% | 0.23% | -0.54% | |
| AUD | -0.30% | -0.38% | -0.27% | -0.97% | -0.25% | -0.04% | -0.80% | |
| NZD | -0.16% | -0.31% | -0.23% | -0.90% | -0.23% | 0.04% | -0.76% | |
| CHF | 0.52% | 0.43% | 0.53% | -0.17% | 0.54% | 0.80% | 0.76% |
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 recovers above 20-day EMA
The Pound Sterling recovers sharply to near 1.3150 against the US Dollar. The GBP/USD pair bounced back strongly after discovering strong buying interest near the trendline plotted from the December 28, 2023, high of 1.2828, from where it delivered a sharp upside move after a breakout on August 21. Also, the 20-day Exponential Moving Average (EMA) near 1.3080 has acted as major support for the Pound Sterling’s appeal.
The 14-day Relative Strength Index (RSI) remains inside the 40.00-60.00 range. A fresh bullish impulse would occur if the momentum oscillator breaks above 60.00.
Looking up, the Cable will face resistance near the round-level resistance of 1.3200 and the psychological level of 1.3500. On the downside, the psychological level of 1.3000 emerges as crucial support for the Pound Sterling bulls.
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.