- The pound is trading at about 1.3500 against the US dollar as the market awaits the second estimate of US GDP.
- Fed’s Williams suggests there may be a need to reduce interest rates due to worries about economic growth.
- Boe’s Mann advocates for maintaining current long-term interest rates.
Pound Sterling (GBP) seems set to continue its winning streak against the US Dollar (USD) for a third consecutive day on Thursday. The GBP/USD pair is anticipated to climb to around 1.3520, largely due to the US dollar softening after dovish comments on interest rates from Federal Reserve Bank President John Williams on Wednesday.
At this moment, the US Dollar Index (DXY), which measures the dollar against six major currencies, has dipped to approximately 97.90.
In a CNBC interview, Williams pointed out that the slowdown in gross domestic product (GDP) and the ongoing adjustments in the economy create space for potential interest rate cuts. He noted that he hasn’t officially backed a rate decrease in the upcoming September meeting and emphasized that more economic data is needed for informed decision-making, stating, “The risks are more balanced. We need to see how our data works.”
Simultaneously, Williams refrained from discussing Fed Governor Lisa Cook’s situation, who intends to legally contest her dismissal by President Donald Trump, a move announced recently with Trump’s release of her termination letter linked to a mortgage claim.
Daily Digest Market Movement: BoE’s Mann Supports Prolonged Interest Rates
- Despite expectations for the Bank of England (BoE) to lower interest rates throughout the year, the pound is facing slight weakness against key currencies, except for those in North America, on Thursday. Traders appear to be losing confidence in the central bank’s capability to further expand monetary policy due to rising inflation pressures.
- Since May, the UK has seen inflation pressures increase more rapidly every month, with the Headline Consumer Price Index (CPI) rising 3.8% year-on-year in July.
- Katherine Mann, a member of the BoE Monetary Policy Committee (MPC), also expressed her view that interest rates should remain steady for a longer duration, referencing sustained price pressures.
- Looking ahead, the second estimate of GDP for the second quarter will serve as a significant factor for the GBP/USD pair, set to be released at 12:30 GMT. The US Bureau of Economic Analysis (BEA) indicates a growth rate of 3.1% year-on-year, slightly above the preliminary estimate of 3.0%.
- Additionally, early US unemployment claims data for the week ending August 23rd will draw investor attention, with economists predicting a drop in the number of new unemployment claims to 230k from a previous figure of 235k.
- This week, the US Personal Consumption Expenditures (PCE) Price Index data for July will be another key piece for the dollar, scheduled for release on Friday.
- Economists believe that core PCE inflation, which excludes volatile food and energy prices, will rise to 2.9% from June’s 2.8%, with monthly figures increasing by 0.3%.
- US inflation data will be closely monitored by investors as it may influence market views regarding the Fed’s monetary policy. According to the CME FedWatch tool, there’s an 87% chance that the Fed will lower interest rates in its September meeting.
Technical Analysis: Pound Sterling Trades Near 20-Day EMA
The pound is likely to trade within a sideways range, maintaining about 1.3500 against the US dollar on Thursday. The overall trend for the GBP/USD pair appears sideways as it hovers near the 20-day exponential moving average (EMA).
Interestingly, the formation of an inverted head and shoulders (H&S) chart pattern hints at a potential bullish reversal after a corrective dip. The neckline for the H&S pattern is around 1.3580.
The 14-day relative strength index (RSI) is fluctuating between 40.00 and 60.00, suggesting a possible contraction in volatility.
On the downside, the low from August 11 at 1.3400 serves as a crucial support level. Meanwhile, the height reached on July 1 at around 1.3790 remains a significant resistance point.
