The Pound Sterling (GBP) is trading higher against major currencies, except for those in North America, on Wednesday. Investors are somewhat hesitant, keeping a close eye on whether the Bank of England (BOE) will opt for another interest rate cut during this year’s monetary meetings.
There’s increased uncertainty surrounding the BOE’s monetary policy as inflation in the United Kingdom (UK) remains stubbornly high, and demand for labor is on the decline.
In September, the BOE opted to maintain interest rates at 4%, adopting a cautious and gradual approach towards monetary easing. Today, attention will be on a speech by BOE Chief Economist Huw Pill, set for 15:00 GMT. Pill was among the seven out of nine members of the Monetary Policy Committee (MPC) who voted to keep the rates steady.
During the European trading session, the BOE’s minutes indicated that households and businesses in the UK continue to show resilience despite rising living and borrowing costs. The minutes suggested that risk managers are feeling more confident about the stability of the UK financial system in the latter part of the year compared to the first half.
Pound Sterling weakens against USD, investors await FOMC minutes
- Pound Sterling appears to be under pressure against the US dollar (USD), hovering near 1.3400 during the European trading hours. The GBP/USD pair faces selling pressure as the USD has outperformed its peers, even amidst a prolonged government shutdown.
- Currently, the US Dollar Index (DXY), which measures the dollar against six major currencies, is up 0.35% around 99.00, marking its highest level in two months.
- The US dollar is seeing significant demand due to recent political events in Japan and France that have prompted a search for safe-haven assets. In Japan, the ruling Conservative Party has nominated Takachi Sanae as its new leader, which has dampened expectations for further interest rate increases by the Bank of Japan (BOJ). Meanwhile, France is grappling with a serious political crisis following the abrupt resignation of Prime Minister Sébastien Lecoune.
- Domestically, the ongoing US government shutdown is likely to pose a challenge for the dollar, as President Donald Trump has warned of cuts to welfare programs and potential federal layoffs. He mentioned that he would provide more details on federal job cuts in the coming days, according to reports.
- In the US, all eyes will be on the release of the Federal Open Market Committee (FOMC) minutes from the September meeting, set to be released at 18:00 GMT. These minutes will detail the decision to cut interest rates by 25 basis points (BPS), marking the Fed’s first rate cut of the year.
- The Fed’s DOT plot indicates that officials expect the federal funds rate to drop to 3.6% by year-end, hinting at the possibility of two more rate cuts this year. The CME FedWatch tool suggests there’s an 82% chance the central bank will decrease rates by 25 BPS in each of the remaining two policy meetings of the year.
Technical analysis: Pound Sterling is below the 20-day EMA
The Pound Sterling is underperforming against the US dollar, falling to around 1.3400 on Wednesday. The GBP/USD pair is trading below its 20-day exponential moving average (EMA) close to 1.3468, indicating a bearish sentiment in the near term.
The 14-day Relative Strength Index (RSI) remains within the 40.00-60.00 range, signaling a sideways trend.
Looking downwards, the low on August 1 at 1.3140 serves as a critical support area, while the high on September 17 at 1.3726 presents a significant barrier.
