- The Pound Sterling remains fragile around 1.3060 against the US Dollar as investors anticipate a gradual rate-cut approach from the Federal Reserve.
- Fed’s Williams suggests the central bank won’t rush into cutting interest rates.
- Investors are looking ahead to the US CPI and UK GDP data for updated interest rate forecasts.
The Pound Sterling (GBP) is attempting to recover from a three-week low of 1.3060 against the US Dollar (USD) during Tuesday’s North American session. However, the near-term outlook for the GBP/USD pair remains weak as the US Dollar maintains gains near a fresh seven-week high, with the US Dollar Index (DXY) around 102.50. The Greenback has strengthened as market participants are not anticipating a significant 50 basis points (bps) interest rate cut from the Federal Reserve (Fed) in November.
The Fed began its policy-easing cycle with a 50 bps cut in September, primarily aimed at bolstering labor market strength after gaining confidence that inflation will sustainably return to its target of 2%.
While there were expectations that the Fed would aggressively extend its rate-cutting cycle, those speculations were dashed by positive US Nonfarm Payrolls (NFP) data for September, which revealed strong job growth, a lower unemployment rate, and increased wage growth.
Despite the diminished speculation for substantial rate cuts, the Fed is still expected to continue easing monetary policy. In a Tuesday interview with the Financial Times, New York Fed Bank President John Williams indicated that he supports a 25 bps rate cut and is not in a rush to lower interest rates quickly, citing increased confidence in consumer spending and economic growth due to the latest employment data.
Looking ahead, investors will focus on the US Consumer Price Index (CPI) data for September, set to be released on Thursday.
Daily Digest: Market Movers - Pound Sterling Struggles Against the US Dollar
- The Pound Sterling outperforms its major peers on Tuesday as investors react to Middle East tensions influencing market sentiment. In the Asian session, Iran’s Foreign Minister Abbas Araqchi warned Israel of strong retaliation if it attacks Iranian infrastructure. Although the British currency generally has a negative correlation with risk-aversion trends, expectations for the Bank of England’s (BoE) shallow policy-easing cycle help limit downside pressure.
- Market participants anticipate that the BoE will implement another interest rate cut in one of the two remaining meetings this year. In contrast, the European Central Bank (ECB) and the Fed are both expected to lower their borrowing rates by 25 bps in their remaining meetings. The prospects for a BoE rate cut in November have improved following comments from Governor Andrew Bailey, suggesting that the central bank could act aggressively if price pressures continue to decline.
- UK inflation has remained stubbornly high due to persistent price pressures in the services sector, with annual service inflation rising to 5.6% in August, up from 5.2% in July.
- This week, investors will closely monitor the monthly Gross Domestic Product (GDP) and factory data for August, which will be published on Friday, for fresh insights into the current economic landscape
Technical Analysis: Pound Sterling Nears Upward-Sloping Trendline
The Pound Sterling is trading within Monday’s range, with investors focused on the US CPI data for September. The GBP/USD pair is expected to remain under pressure as it struggles to hold above the 50-day Exponential Moving Average (EMA), currently around 1.3100. The Cable has weakened after dropping below the upward-sloping trendline established from the December 28, 2023, high of 1.2827.
The 14-day Relative Strength Index (RSI) has declined to near 40.00, indicating that further downside momentum may develop if the oscillator falls below this level.
On the upside, the round-number resistance at 1.3100 and the 20-day EMA near 1.3202 will pose significant challenges for GBP bulls. Conversely, the pair is expected to find support around the psychological level of 1.3000.
