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The Pound Hits a New Two-Week High as Market Mood Gets Better

Leon Kramer

ByLeon Kramer

Oct 12, 2023

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  • The Pound Sterling has experienced a notable upturn in value due to enhanced market sentiment and the hawkish commentary delivered by the Bank of England’s representative, Mr. Mann.
  • Katherine Mann preferred an assertive strategy focused on policy tightening.
  • The attention of investors has been redirected towards the forthcoming release of the United Kingdom’s August Gross Domestic Product (GDP) data, slated for publication on Thursday.

The Pound Sterling (GBP) demonstrates signs of stabilization after its recovery from a six-month nadir, owing to an amelioration in market sentiment. This positive shift is further reinforced by the advocacy of Bank of England (BoE) lawmaker Katherine Mann, who advocates for a more assertive strategy to curtail inflation and achieve the desired goal of 2%.

In a recent statement, BoE Governor Andrew Bailey expressed his anticipation for a decrease in inflation to 5% or lower by the conclusion of the current year. However, it is essential to note that he needed to ensure timely price stability.

The construction and manufacturing industries in the United Kingdom are currently experiencing the adverse effects of elevated interest rates. The United Kingdom’s factory activity has been experiencing a sustained period of contraction, as evidenced by the PMI gauge consistently falling below the critical threshold of 50.0. To gain further insights into the prevailing market state, investors are anticipated to redirect their attention towards the forthcoming UK manufacturing production and GDP data for August, scheduled for release on Thursday.

The Pound the Expectation for More Gains as the US Dollar Corrects

  • The Pound Sterling is currently experiencing selling pressure in the vicinity of 1.2250 against the US Dollar. However, it is worth noting that there is a prevailing inclination towards further upward movement, primarily due to the endorsement of a more assertive monetary policy by Bank of England policymakers.
  • Katherine Mann, a member of the Bank of England (BoE), expressed her view on Monday regarding the necessity for central bankers to adopt a more assertive approach. According to the speaker, it is imperative to acknowledge that reducing inflation to the desired level of 2% does not rest solely upon the central bank. In addition, it becomes crucial for the central bank to manage and mitigate the escalating inflationary expectations effectively.
  • Katherine Mann has articulated apprehensions regarding the duration inflation is expected to persist above the designated target of 2%.
  • The United Kingdom exhibits a relatively elevated level of inflation compared to the other G7 economies. The escalation of geopolitical tensions in the Middle East has the potential to exert upward pressure on oil prices, consequently leading to an increase in inflationary expectations.
  • The current state of the UK economy is characterized by increased vulnerability, primarily attributed to elevated levels of inflation as well as interest rates implemented by the Bank of England. Production output and building expenditures in the United Kingdom have experienced a decline, primarily driven by concerns among firms regarding the outlook for demand.
  • Investors are anticipated to direct their attention towards the forthcoming publication of the August GDP report, scheduled for Thursday, as it is expected to offer additional insights into the nation’s economic performance. According to financial analysts, there is an anticipation of a 0.4% contraction in monthly Manufacturing Production, in contrast to the 0.8% contraction observed in July. The projected trend for Monthly Industrial Production indicates a deceleration in the rate of decline, with a forecasted decrease of 0.2% compared to the previous contraction of 0.7% observed in July. 
  • The ongoing decrease in factory activity within the United Kingdom suggests that businesses maintain a negative outlook regarding future demand, even in light of the temporary cessation of policy tightening measures by the Bank of England.
  • The projected month’s Gross Domestic Product (GDP) is anticipated to exhibit a growth of 0.2%, contrasting with the previously recorded decline of 0.5% in July.
  • From a global perspective, investors are currently processing the ongoing conflict between Israel and Hamas, as the latter has expressed its willingness to engage in discussions regarding a potential ceasefire. However, the prospect of imminent ceasefire negotiations remains unlikely, and there is a growing concern regarding the possible involvement of additional nations in the ongoing conflict.
  • The US Dollar Index (DXY) found some support after testing the crucial level of 106.00. The attention of investors is currently being directed towards the forthcoming release of the United States price increases data, scheduled for publication on Thursday. The primary Consumer Price Index (CPI), which excludes the influence of fluctuating food and oil prices, is projected to exhibit a consistent growth rate of 0.3% every month.
  • There is a potential strengthening of the USD Index if the inflation report for September exceeds initial expectations. Persistent inflationary pressures and resilient labor market conditions may compel Federal Reserve (Fed) policymakers to consider implementing an additional interest rate increase on November 1.
  • Before that, it is of utmost importance to closely monitor the forthcoming release of the FOMC minutes from the most recent Federal Reserve meeting, scheduled for dissemination on Wednesday. The Federal Open Market Committee (FOMC) meeting minutes about the September monetary policy are anticipated to elucidate the underlying reasoning behind the decision to maintain the prevailing interest rates without alteration.

The Value of the Pound Remains Stable Above 1.2200

The Pound Sterling is currently encountering resistance near its weekly high at 1.2250. However, the currency pair is anticipated to continue to exhibit upward momentum, given the improving risk appetite among market participants. The GBP/USD pair has shown a resurgence, approaching the vicinity of the 20-day exponential moving average (EMA) situated at approximately 1.2264.

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The overall perspective on the GBP/USD is characterized by a bearish sentiment, primarily due to a death cross near 1.2450, where the 50-day and 200-day Exponential Moving Averages (EMAs) intersect. The level of potential support is observed to be approximately 1.2000.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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