- GBP/USD made little progress on Friday
- The British Pound has been struggling in anticipation of the upcoming Bank of England interest rate decision
- The Bank of England is expected to announce a reduction in interest rates by a quarter-point next Thursday
GBP/USD struggled on Friday, edging up a mere 0.13% for the day as the Pound Sterling is burdened by widespread anticipation of an interest rate reduction from the Bank of England (BoE) in the upcoming week. The pair concludes the trading week with a decrease of 0.5%, marking a second consecutive week of downward movement as the pair retreats from its peak of 1.3000 reached last week.
The Bank of England is poised to announce its first interest rate reduction since March 2020 later this week. The primary benchmark rate in the UK is anticipated to decrease by 25 basis points, moving from the current 5.25% to 5.0%. Prior to that, the Federal Reserve (Fed) is scheduled to announce its July rate decision, and investors generally anticipate that the US central bank will maintain interest rates for one more meeting before initiating a series of rate cuts in September.
Although the median market forecast called for a decrease to 2.5%, primary PCE inflation in the United States remained unchanged at 2.6% year-over-year in June. As an additional point of interest, the PCE inflation rate in the near term increased to 0.2% in June, which was higher than the anticipated 0.1%.
It had been eight months since the Consumer Sentiment Index at the University of Michigan had reached its lowest point, which was measured at 66.4 in July. While this number was slightly higher than the anticipated 66.0, it was still lower than the previous reading of 68.4 that was taken into consideration. The Consumer Inflation Expectations for the next five years from the University of Michigan rose to 3.0% in July, up from the previous rate of 2.9%.
The markets chose not to be concerned with the numbers and instead adopted a more optimistic attitude towards risk, anticipating a potential reduction in interest rates in September. This was done in spite of the fact that signs were pointing towards possible inflationary pressures. The Federal Open Market Committee (FOMC) is expected to reduce interest rates by 25 basis points on September 18, according to the FedWatch Tool provided by the CME.
The rate markets are indicating that there is a strong likelihood of this happening. There is also a one hundred percent chance that the Federal Open Market Committee will keep the rates at their current level on July 31. In addition, there is a twelve percent chance that a group that is particularly optimistic about a reduction in interest rates will double the reduction by fifty basis points the following month, which would take place in September.
Technical Analysis of GBP/USD
The cable has dropped below the 1.2900 mark once again, slipping from its 12-month high of around 1.3045, which it achieved last week. The pair has experienced a decline of approximately 1.5% from its peak. However, in the short term, there is still a positive bias towards buyers as the price remains above the 200-day Exponential Moving Average (EMA) at 1.2636.
There is a possibility of downward pressure on bids, aiming to push them below the previous swing low of around 1.2600. However, if GBP/USD drops significantly enough to reach a rising trendline drawn from the bottom bids in October last year at 1.2037, there may be renewed buying interest.