- The Pound Sterling finds temporary support near 1.3100 against the US Dollar as the Greenback corrects slightly.
- Investors see the Fed reducing interest rates this month but are split over the size of the potential rate cut.
- The BoE’s policy-easing cycle is expected to be shallow for the remainder of the year.
The Pound Sterling (GBP) edges higher after falling to near the round-level support of 1.3100 in Wednesday’s North American session. The GBP/USD pair struggles to gain ground as the market sentiment sours amid increasing uncertainty ahead of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published on Friday.
S&P 500 futures decline further in early New York trading hours after a bearish Tuesday, exhibiting a sharp decline in the risk appetite among market participants. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects marginally to near 101.60.
The official labor market data will influence market speculation about the size of the Federal Reserve (Fed) interest rate cut in September. Markets are fully pricing in that the Fed will pivot to policy normalization this month, but traders remain divided about whether the central bank will begin the policy-easing cycle aggressively, with a big interest rate cut, or more gradually.
If the US NFP data points to a further slowdown in labor demand and higher unemployment, market expectations for the Fed reducing its key borrowing rates by 50 basis points (bps) would increase sharply. In a speech at the latest Jackson Hole (JH) Symposium, Fed Chair Jerome Powell vowed to support the labor market in case it continues to deteriorate. On the contrary, steady or better-than-projected job data would weaken expectations of a big rate cut.
In Wednesday’s session, investors will focus on the US JOLTS Job Openings data for July and the Fed’s Beige Book, which will be published at 14:00 GMT and 18:00 GMT, respectively. Economists expect that US employers posted 8.1 million fresh job vacancies, marginally lower from 8.184 million in June.
Daily digest market movers: Pound Sterling rises as BoE’s policy-easing cycle likely to be shallow
- The Pound Sterling outperforms its major peers on Wednesday. The British currency gains strength amid growing speculation that the policy-easing cycle by the Bank of England (BoE) would be shallow in the remainder of this year compared with that of its peer central banks.
- According to money market pricing data, the BoE is expected to cut interest rates by 40 bps in the remaining year, while the European Central Bank (ECB) is projected to cut by 65 bps, Reuters reported. In the same time frame, the Fed is estimated to cut its key borrowing rates by 100 bps, according to the CME FedWatch tool.
- An improving economic outlook in the United Kingdom (UK) and a slower decline in service inflation have supported expectations of the BoE opting for a gradual policy-easing cycle. The UK economy is expected to perform better than initially anticipated due to an expansion in manufacturing as well as the service sector.
- The final estimate for S&P Global/CIPS Composite PMI came in at 53.8 in August, higher than the preliminary release of 53.4. The indicator suggests that the economy grew at the fastest pace since April.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.11% | -0.12% | -0.33% | -0.03% | -0.24% | -0.15% | 0.04% | |
| EUR | 0.11% | 0.00% | -0.22% | 0.10% | -0.13% | -0.01% | 0.14% | |
| GBP | 0.12% | 0.00% | -0.23% | 0.10% | -0.12% | 0.00% | 0.14% | |
| JPY | 0.33% | 0.22% | 0.23% | 0.32% | 0.11% | 0.20% | 0.37% | |
| CAD | 0.03% | -0.10% | -0.10% | -0.32% | -0.22% | -0.10% | 0.04% | |
| AUD | 0.24% | 0.13% | 0.12% | -0.11% | 0.22% | 0.11% | 0.28% | |
| NZD | 0.15% | 0.00% | 0.00% | -0.20% | 0.10% | -0.11% | 0.14% | |
| CHF | -0.04% | -0.14% | -0.14% | -0.37% | -0.04% | -0.28% | -0.14% |
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 finds support near 1.3100
The Pound Sterling edges higher from a fresh weekly low of around 1.3090 against the US Dollar. Still, the GBP/USD pair struggles to gain a firm footing near the round-level support of 1.3200. The Cable may likely find buying interest near the breakout region of an upward-sloping trendline plotted from 28 December 2023 high of 1.2828 on a daily time frame.
The 14-day Relative Strength Index (RSI) declines to near 60.00 after exiting overbought conditions, signaling a lack of bullish momentum.
However, upward-sloping short-to-long-term Exponential Moving Averages (EMAs) suggest a strong bullish trend.
If bullish momentum resumes, the Cable is expected to rise towards the psychological resistance of 1.3500 and the February 4, 2022, high of 1.3640 after breaking above a fresh two-and-a-half-year high of 1.3266. On the downside, the psychological level of 1.3000 will be the 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.
