- The British Pound surges against the American Dollar following a statement from Fed Powell indicating a more cautious approach to interest rates.
- Jerome Powell pledges an unwavering commitment to bolstering the resilience of the labor market.
- Investors eagerly anticipate the upcoming speech by BoE Bailey at the prestigious Jackson Hole Symposium.
The British Pound (GBP) continues its impressive run, notching up its seventh consecutive day of gains against the US Dollar (USD) on Friday. The GBP/USD pair reaches a brand new peak of 1.3200, marking its highest level in two years. This surge comes as the US Dollar (USD) continues to decline, nearing its lowest point of the year. The drop in the USD follows a cautious outlook on interest rates provided by Federal Reserve (Fed) Chair Jerome Powell during the Jackson Hole (JH) Symposium.
The US Dollar Index (DXY), which monitors the value of the Greenback against six major currencies, has fallen below the significant support level of 101.00 and is currently moving towards the yearly low of 101.60. During the JH event, Fed Powell acknowledged the necessity of lowering interest rates due to the shift in the balance of risks towards employment. He expressed confidence that inflation is on a trajectory to reach the bank’s target of 2%. Jerome Powell did not indicate a predetermined plan for easing. Still, he acknowledged the likelihood of rate cuts in the near future by stating, “It is now necessary for policy to adapt.”
Meanwhile, other policymakers at the JH event also mentioned a more cautious approach to interest rates. According to Reuters, Philadelphia Fed Bank President Patrick Harker emphasized the importance of a consistent approach to monetary easing during an interview on Thursday. Harker suggested that the central bank should prioritize initiating this easing process in September rather than solely focusing on the magnitude of the policy action.
In addition, Susan Collins, the President of the Boston Fed Bank, endorsed reducing interest rates in September. Collins expressed unwavering optimism regarding the Federal Reserve’s ability to accomplish its objectives without causing a downturn.
Pound Sterling Strengthens Prior to Boe Bailey’s Address at Jackson Hole
- The Pound Sterling demonstrates impressive strength against its main counterparts, with the exception of currencies in the Asia-Pacific region, on Friday. The British currency strengthened due to intense speculation that the Bank of England’s policy-easing cycle will proceed at a more gradual pace compared to other prominent central banks. Confident predictions of a more gradual BoE policy-normalization process are supported by a favorable United Kingdom (UK) economic outlook and continued strong wage growth.
- The latest UK S&P Global/CIPS PMI data for August, which was published on Thursday, revealed that the overall business activity experienced a notable increase, reaching a four-month peak at 53.4. A robust expansion in both the manufacturing and services sectors primarily fueled this growth. The report also indicated a significant decrease in the accumulation of tasks and a favorable attitude toward the prospects of the company, suggesting a robust increase in employment opportunities.
- Despite the positive economic outlook, market speculation of another interest rate cut by the BoE this year is still prevalent. This is due to the fact that input prices in the service sector reached their lowest level in over three-and-a-half years in August. BoE policymakers can breathe a sigh of relief as they seemed uneasy about reducing interest rates while inflation in the service sector remains high.
- Meanwhile, investors eagerly anticipate BoE Governor Andrew Bailey’s upcoming speech at the Jackson Hole (JH) Symposium, set to take place at 19:00 GMT. Andrew Bailey is expected to offer new indications regarding the possibility of the Bank of England reducing interest rates in September.
Pound Sterling Experiences Breakout From a Rising Channel
The British Pound reaches a level close to its highest point in over two years, around 1.3200. The GBP/USD pair has gained momentum following a breakout of the Rising Channel chart pattern on the daily timeframe. Market participants view each pullback as a chance to buy into the currency pair. The upward slope of all the exponential moving averages (EMA) indicates a bullish trend.
The 14-period Relative Strength Index (RSI) fluctuates within the bullish range of 60.00-80.00, indicating robust upward momentum. However, it has surged to overbought territory at approximately 70.00, raising the likelihood of a corrective pullback. Unfortunately, the Pound Sterling bulls will heavily rely on the critical support level of 1.3000 from a psychological standpoint.