- The Pound Sterling remains under pressure but it could rebound as market participants reassess the BoE rate cut path.
- Unexpectedly strong UK Retail Sales data for September could dampen expectations that the BoE will opt for large interest-rate cuts.
- Kamala Harris leads by a slight margin in national polls against Donald Trump in US presidential elections.
The Pound Sterling (GBP) weakens slightly against its major peers at the start of the week. The British currency, which has suffered in the past weeks on the broad assessment that the Bank of England (BoE) will cut interest rates aggressively, could now be facing a different scenario after the release of strong United Kingdom (UK) Retail Sales data for September.
The Retail Sales data, a key measure for consumer spending, surprisingly rose by 0.3% month-over-month. Economists had projected a decline in the consumer spending measure at a similar pace.
Before the UK Retail Sales data, traders started pricing in the BoE to cut interest rates in both the policy meetings remaining this year amid slowing inflation. However, upbeat Retail Sales data is expected to weigh on bets supporting the BoE to cut its key borrowing rates in December.
For more guidance on interest rates, investors will pay close attention to speeches from BoE Governor Andrew Bailey, Governor Sarah Breeden, and policymaker Megan Greene on Tuesday. Bailey will speak several times during the week.
On the economic front, investors will focus on the preliminary S&P Global/CIPS Composite Purchasing Managers’ Index (PMI) data for October, which will be published on Thursday. The overall business activity is expected to have expanded at a slower pace.
Daily digest market movers: Pound Sterling underperforms US Dollar
- The Pound Sterling drops to near 1.3020 against the US Dollar (USD) in Monday’s London session. The GBP/USD pair stays under pressure as the US Dollar resumes its upside journey after a slight correction on Friday. The Greenback gains on expectations that the policy-easing cycle from the Federal Reserve (Fed) will be more gradual than previously expected.
- According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the Fed will lower rates by 50 basis points (bps) in the remaining year, suggesting that the US central bank will cut its borrowing rates by 25 bps both in November and December. The Fed seems to follow a moderate policy-easing cycle as a string of upbeat United States (US) data for September has diminished risks of an economic slowdown.
- However, Atlanta Fed Bank President Raphael Bostic said on Friday that he sees only one interest rate cut in the remaining two meetings this year. Bostic added that he sees the federal funds rate heading between 3% and 3.5% at the end of 2025, but that he is not in a rush to reach this neutral level.
- Meanwhile, the immediate reaction in the US Dollar will be guided by how speculation over US presidential elections will shape going forward. Currently, Vice President Kamala Harris is running ahead of former President Donald Trump in national polls, according to the Emerson College’s poll.
Technical Analysis: Pound Sterling hovers near 1.3000
The Pound Sterling trades at make or a break near the psychological support of 1.3000 in European trading hours. The near-term outlook of the GBP/USD remains bearish as it hovers below the 50-day Exponential Moving Average (EMA), which trades around 1.3090.
The 14-day Relative Strength Index (RSI) hovers near 40.00. A breakdown will the same will strengthen the bearish momentum.
Looking down, the upward-sloping trendline drawn from the April 22 low at 1.2300 will be a major support zone for Pound Sterling bulls near 1.2920. On the upside, the Cable will face resistance near the 20-day EMA around 1.3110.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
