- The pound sterling has dropped to nearly 1.3400 against the US dollar as the US finalizes a trade deal with the EU.
- Market participants are hopeful that the Fed will keep interest rates steady during their announcement on Wednesday.
- The Bank of England is expected to lower interest rates next week.
At the start of the week, the pound sterling (GBP) fell to approximately 1.3400 versus the US dollar (USD). This movement comes as the US dollar gains traction following the announcement of a trade framework between the US and the EU.
The US Dollar Index (DXY), which measures the greenback against six major currencies, has climbed to around 97.90 as of this update.
Over the weekend, President Trump revealed a trade agreement with the EU, which sets the baseline tariffs on imports from Brussels at 15%—a significant reduction from the 30% he previously threatened.
This new tariff arrangement has sparked increased interest in riskier assets, although currencies known for their sensitivity to risk are having a tough time taking advantage of the positive market sentiment, mainly due to the improved outlook for the US dollar.
The confirmation of trade agreements between the US and EU alleviates some uncertainty surrounding the looming tariff deadline of August 1st, which had previously capped the US dollar’s potential. It appears that Washington has now resolved its trade relationships with most key partners, with the exception of Canada and Mexico.
Meanwhile, market watchers are keeping an eye on US-China trade discussions in Stockholm, where talks about extending the current tariff suspension are set to begin on Monday. Reports suggest that the ceasefire, which is set to expire on August 12th, may indeed be prolonged.
Market Update: Impact on Pound Sterling from Rate Speculation
- Pound sterling is showing varied performance against other currencies during Monday’s trading session in Europe. Speculation around the upcoming monetary policy decision from the Bank of England (BOE) is anticipated to influence the UK currency.
- Market consensus suggests a 25 basis points (BPS) cut from the BOE, driven by signs of a cooling labor market ahead of the financial policy announcement on August 7th.
- A recent uptick in employer contributions to social security has contributed to a slowdown in UK employment data. Prime Minister Rachel Reeves recently announced an increase in National Insurance contributions from 13.8% to 15%.
- Additionally, last week’s preliminary S&P Global Purchasing Managers Index (PMI) report indicated the fastest decline in staffing levels since February.
- The Federal Reserve’s monetary policy announcement on Wednesday is likely to heavily influence the GBP/USD pair. The CME FedWatch tool indicates that the Fed is expected to maintain interest rates within the 4.25% to 4.50% range.
- With the expectation of stability in borrowing rates, investors will be keen to hear comments from Chairman Jerome Powell regarding the effects of tariffs on both short- and long-term inflation, as well as how these may affect financial policy for the remainder of the year.
Technical Analysis: Pound Sterling Nears 1.3400
The pound sterling continues to trend downward, nearing 1.3400 against the US dollar on Monday. The GBP/USD pair appears bearish, particularly since it’s trading below both the 20- and 50-day exponential moving averages, which are around 1.3505 and 1.3474, respectively.
The formation of a head and shoulders (H&S) pattern on the daily chart implies a negative outlook for the currency pair, with the neckline positioned near 1.3413.
The 14-day relative strength index (RSI) has dipped to nearly 40.00, and if it falls further, it could indicate new unfavorable movements for the pair.
On the downside, the low from May 12 at 1.3140 will act as a key support level. Conversely, the high of July 1 around 1.3790 serves as significant resistance.
