GBP Continues Decline Against USD
The British pound (GBP) experienced its third consecutive day of losses against the US dollar (USD) on Tuesday, dropping to approximately 1.3370. This decline came as the US dollar gained strength, fueled by increased optimism regarding a potential trade agreement between the US and China.
As of now, the US Dollar Index (DXY), which measures the dollar’s performance against six prominent currencies, was up 0.25% to around 98.85.
US President Donald Trump expressed optimism on Monday about a forthcoming deal with China after a meeting with Chinese leader Xi Jinping, saying it could happen at the upcoming Asia-Pacific Economic Cooperation summit in South Korea later this month. Trump noted, “I think we’re going to end up with a great deal with China,” highlighting that it would be beneficial for both nations and the global community.
Trade tensions escalated after China announced export limits on rare earth minerals, prompting the US to impose a 100% tariff on certain imports from China.
Market Overview: Anticipation for UK-US CPI Data
- The pound is expected to weaken against the dollar this week as investors await CPI data releases from the UK and the US, scheduled for Wednesday and Friday, respectively.
- In the UK, inflation is forecasted to increase significantly in September, possibly compelling the Bank of England (BoE) to navigate carefully between rising prices and a softening job market in its upcoming monetary policy meeting.
- The Office for National Statistics (ONS) is anticipated to report that the UK’s headline CPI for September saw an annual rise of 4%, up from 3.8% previously, aligning with BoE expectations. The BoE had indicated in September that it anticipated inflation to peak around this level. Meanwhile, core CPI, excluding more volatile items, is projected to have risen at a quicker rate, reaching 3.7% from 3.6% in August.
- Kathryn Mann, a notable hawk on the BoE’s Monetary Policy Committee (MPC), forewarned of potential inflation risks last week, urging caution against further interest rate cuts. She remarked that the labor market is easing but not drastically, implying that there’s no immediate need for cuts: “What’s actually happening is that the labor market is easing a little bit, but it’s not falling off a cliff.”
- On the other hand, price pressures in the US are anticipated to rise slightly in September. The US headline CPI is expected to increase to 3.1% compared to 2.9% from the previous update, with the core figure also consistently rising by 3.1%. Month-on-month, both the overall CPI and core CPI are projected to grow by 0.4% and 0.3%, respectively.
- As traders gear up for US inflation data, there appears to be confidence that the Federal Reserve may lower interest rates in its two remaining monetary policy meetings this year, as suggested by the CME FedWatch tool.
Technical Analysis: GBP Below 20-Day EMA
The British pound fell further against the US dollar to approximately 1.3370 on Tuesday. It seems to be struggling to surpass the 20-day exponential moving average (EMA), currently around 1.3417.
The 14-day Relative Strength Index (RSI) has remained between 40.00 and 60.00, indicating a somewhat stable trend.
Looking at support levels, the low from August 1st at 1.3140 serves as a key support zone. Conversely, the psychological threshold of 1.3500 is expected to act as a significant resistance level.
