Daily Brief: Pound Sterling Gains Against US Dollar
- Pound Sterling is approaching 1.3450 against the US dollar as concerns about a potential US government shutdown loom.
- Swati Dhingra, a member of the Bank of England’s Monetary Policy Committee, advocates for quick interest rate reductions due to a slowing job market in the UK.
- There’s noticeable volatility in the US dollar as investors focus on the week’s incoming data.
The Pound Sterling (GBP) is exhibiting strong performance against other key currencies at the week’s start. Dhingra has suggested quick interest rate cuts in light of rising worries regarding the UK job market, according to her column in the Times on Friday.
“We can afford to reduce rates further without risking our inflation targets or hindering economic growth,” Dhingra mentioned. She feels optimistic that the inflation risks in the UK will diminish, and central banks should act with caution regarding future cuts.
It’s worth noting that Dhingra was one of the two MPC members who voted to maintain interest rates at 4% during the recent monetary policy meeting.
According to Adzuna, a UK employment website, job postings by employers declined by 1.3% over the year ending in August, marking the first drop since February. This trend, if it continues, could prompt the Bank of England to adopt a more neutral stance on monetary policy. Now, traders are hoping for rates to hold steady at 4% in future announcements.
Looking ahead, investors are set to watch for the revised UK Q2 Gross Domestic Product (GDP) data due out Tuesday. The preliminary report indicated a quarterly growth of 0.3%.
Market Movements: Pound Sterling Outlook
- The Pound Sterling is expected to hover around 1.3450 against the US dollar during Monday’s European trading. The GBP/USD pair appears stronger as the US dollar continues to weaken amid the impending government shutdown.
- The US Dollar Index, which gauges the dollar’s performance against six major currencies, is nearing 97.95, following recent selling pressures that kept it from rising past 98.60.
- The Republican-controlled US Senate is facing challenges in getting a short-term funding bill passed to the House, with Democrats pushing for the reversal of recent cuts to healthcare programs, as reported by Reuters. The government must pass this bill by October to prevent shutdowns, which could impact multiple agencies.
- Comments from US President Trump indicate a contentious negotiation landscape, highlighting the political tensions at play.
- This week, market participants will be closely monitoring the US labor market data and the ISM Purchase Manager Index (PMI), particularly as the Federal Reserve remains concerned about deteriorating labor market conditions against persistently high inflation.
Technical Insights: Pound Sterling Projections
The Pound is projected to rebound to approximately 1.3445 against the US dollar on Monday, recovering from seven-week lows around 1.3333. Nevertheless, the broader outlook for Cable remains somewhat bearish as it has dropped below the 20-day exponential moving average around 1.3490.
The 14-day relative strength index (RSI) has bounced back from 40.00. If it remains within the 40.00-60.00 range, the pair might just shuffle sideways.
The low of 1.3140 reached on August 1 is a critical support level, while the high of 1.3726 recorded on September 17 represents a significant resistance point.
Upcoming Economic Data
Gross Domestic Product (Quarter-over-Quarter)
The Office for National Statistics is set to release GDP data, which is a key measure of economic activity in the UK. In this context, an increase tends to be positive for Pound Sterling, whereas a decrease could be seen as negative.
