- The Pound Sterling falls close to 1.3200 against the US Dollar as the latter makes a temporary advance.
- Experts predict that the annual core PCE inflation rate will increase to 2.7%.
- Investors are eagerly anticipating Catherine Mann’s speech at 12:15 GMT for new insights into the Bank of England’s interest rate trajectory.
The value of the British Pound (GBP) decreased from its highest point of 1.3266 against the United States Dollar (USD) during the trading session that took place in the United States on Wednesday. As the United States Dollar makes a recovery, the GBP/USD pair is falling. Investors are keeping a close eye on the forthcoming publication of the core Personal Consumption Expenditure Price Index (PCE) data for July in the United States. This information may have a substantial influence on the movement of the pair.
In light of the fact that investors have taken advantage of the chance to acquire at a new low for the year at 100.50, the US Dollar Index (DXY), which tracks the value of the Greenback in comparison to six significant currencies, has witnessed an increase in purchasing demand.
Although the United States Dollar has recently had a bounce, the short-term prospects for the currency continue to be bleak. This is because investors are convinced that the Federal Reserve (Fed) would reduce interest rates during its meeting in September. At the moment, traders are debating whether the Federal Reserve would choose to adopt a minor drop in borrowing expenditures or whether it will choose a big decline in interest rates.
The price data for 30-day Federal Funds Futures suggests that there is a 34.5% possibility of a 50-basis point (bps) cut in interest rates in September. This information is based on the CME FedWatch tool. There is a preference for a reduction of 25 basis points, according to the majority of the data.
As far as core PCE inflation is concerned, experts estimate that the preferred measure of inflation used by the Federal Reserve will climb at a faster pace of 2.7% year-on-year, compared to the 2.6% increase that was seen in June. The data for each month demonstrate a consistent rise of 0.2%. Market anticipation for a significant rate drop by the Federal Reserve may decrease if indicators of inflation continue to present themselves. On the other hand, if pricing pressures continue to decline, it will offer a boost to the expectations of many market participants.
Pound Sterling Experiences Significant Decline Against US Dollar
- During the trading session that took place on Wednesday in North America, the Pound Sterling had a somewhat inconsistent performance in comparison to its main competitors. While investors are looking for new indications regarding the trajectory that the Bank of England (BoE) will take with regard to interest rates, it is predicted that the British pound will move in a virtually horizontal path.
- There was a decision made by the Bank of England (BoE) in August to reduce interest rates by 25 basis points (bps), bringing them down to 5%. Through this action, the Bank of England brought an end to a period of restrictive monetary policy that had lasted for two and a half years. Officials at the Bank of England have indicated a greater level of confidence that inflation will eventually return to the goal level of 2% that the bank has set.
- As a result of the flash S&P Global/CIPS PMI for August and the solid rise of the Gross Domestic Product (GDP) in the second quarter, market players are anticipating that the Bank of England (BoE) would adopt a more cautious approach in cutting interest rates in comparison to other central banks. The reason for this is that the economy of the United Kingdom (UK) has demonstrated resiliency and has been operating quite well.
- As investors seek new insights on interest rates, they are keenly expecting the speech that will be delivered by Catherine Mann, a policymaker at the Bank of England, which is set to take place at 12:15 GMT. At the meeting of the monetary policy committee that took place on August 1, Mann was one of the policymakers who voted to keep interest rates at their current level of 5.25 percent. Investors will be looking for signs about the scope of the Bank of England’s intentions to reduce interest rates for the year, as well as insights into wage pressures and inflation in the service sector.
- As far as politics are concerned, the statements made by Keir Starmer, the Prime Minister of the United Kingdom (UK), concerning the forthcoming publication of the financial budget in October have had a beneficial impact on the attractiveness of the Pound Sterling. Starmer indicated that it is anticipated that the budget for the fiscal year will be constricted, and he emphasized that this would mean making sacrifices in the short term in order to reap advantages in the long run. Increasing the amount of tax burden that is placed on households, particularly those with higher earnings, is the goal of this proposal.
The Value of the British Pound Has Dropped to Just Below 1.3200
After reaching its most recent high of 1.3266 versus the US Dollar, which was the highest level in two and a half years, the pound sterling has had a minor pullback. The GBP/USD pair has been able to successfully break out of the Rising Channel chart pattern on the weekly time frame, which indicates that it is continuing to retain its solid position in the short term. On the off chance that the bullish trend continues, it is projected that the Cable will continue to rise in the direction of the high of 1.3640 that was hit on February 4, 2022.
A strong rising trend is shown by the Exponential Moving Average (EMA) over twenty weeks, which slopes upward with respect to 1.3000.
A solid rising momentum is indicated by the fact that the 14-period Relative Strength Index (RSI) moves between the bullish band of 60.00-80.00. On the other hand, it has reached overbought territory at about 70.00, which increases the chance of a corrective retreat occurring. From a psychological point of view, the bulls of the pound sterling will, unfortunately, place a significant amount of reliance on the critically important support level of 1.3000.