- Sterling is trading around 1.3350 against the US dollar, with investors closely watching for the Federal Reserve’s impending financial policy announcement.
- There is a prevailing hope among investors that the Fed will hold interest rates steady.
- Concurrently, a dip in labor demand in the UK is setting the stage for potential interest rate reductions by the Bank of England.
Pound Sterling (GBP) is expected to maintain a cautious stance at roughly 1.3350 against the US dollar (USD) during Wednesday’s European trading session, with all eyes on the monetary policy announcement scheduled for 18:00 GMT.
As of now, the US Dollar Index (DXY) is holding its ground near a recent monthly high of 99.00, recorded on Tuesday.
The CME FedWatch tool indicates that the bond market has almost entirely priced in a stable interest rate, keeping the Federal Reserve’s borrowing range at 4.25%-4.50%. This marks the fifth consecutive meeting where the US Central Bank has maintained current rates.
Investors are particularly tuned into Fed Chair Jerome Powell’s press conference as he may provide insights into the financial policy outlook for the remainder of the year. At least two members of the Federal Open Market Committee (FOMC)—Vice-Chair Michelle Bowman and Vice-Chair Governor Christopher Waller—have voiced support for interest rate cuts. They mentioned potential cuts as early as this month due to concerns regarding the labor market.
However, other officials caution against rushing into rate cuts, as the implications of tariffs on various imports are beginning to affect prices. The June Consumer Price Index (CPI) report indicates that prices for typically imported goods in the US have been rising, partly due to these tariffs.
Daily Digest Market Mover: Pound Sterling Remains Steady
- On Wednesday, the pound appears nearly flat against its major peers, except for the Japanese Yen (JPY). The UK currency is likely to face ongoing pressure as the Bank of England (BOE) is nearly certain to lower rates at its upcoming meeting next week.
- Traders seem to be gaining confidence that the BOE will reduce its primary borrowing rate on August 7th, especially as labor market conditions in the UK have cooled, following higher employer contributions to the Social Security scheme.
- A recent survey from the British Federation of Industrial Associations (CBI) stated that household spending is decreasing due to reduced labor demand. The report revealed a decline in retail sales for the tenth consecutive month in July, although the rate of decline was milder than in June.
- In the US, investors are also anticipating the preliminary second-quarter GDP data and the personal consumption expenditure price index (PCE), set to be released during the North American session, along with ADP employment figures.
- The forecasts indicate the economy grew by 2.4% after a 0.5% contraction in Q1. Meanwhile, Core PCE inflation, which the Fed closely monitors, is expected to increase at a slower rate of 2.4% compared to the previous quarter’s 3.5% rise.
- Economists are projecting that the US private sector will add about 78,000 jobs in July, following a decrease of 33,000 jobs in June.
Technical Analysis: Pound Sterling Stabilizes Above 1.3300
The pound is currently striving to find immediate support at 1.3300 against the US dollar on Wednesday. The short-term outlook for the GBP/USD pair appears bearish, as the 20-day exponential moving average (EMA) is trending towards 1.3473.
The head and shoulders (H&S) chart pattern further underscores a bearish trend, with the neckline positioned around 1.3413.
The 14-day relative strength index (RSI) is fluctuating below 40.00, indicating sustained bearish momentum.
To the downside, the May 12 low of 1.3140 will act as a key support area, while the July 1 high of around 1.3790 presents a significant resistance level.
