- The British pound has had a tough time maintaining its upward momentum, struggling to attract interest against the US dollar, which is hovering around 1.3230.
- In response to concerns raised by Chairman Powell regarding potential inflation risks, traders are adjusting their expectations for interest rates.
- There’s a sense of anticipation among investors that the Bank of England will lower interest rates next week.
The pound sterling (GBP) managed to recover slightly to 1.3270 against the US dollar (USD) during Thursday’s European trading hours, bouncing back from a low of 1.3228 reached the previous day. As the US dollar, which had enjoyed a five-day winning streak, experiences some pullback, bids for GBP/USD begin to pick up, though the overall sentiment remains bearish given the stronger US dollar.
Currently, the US Dollar Index (DXY), which measures the dollar against six major currencies, is nearing 99.60, down from around 100.00—a two-month peak hit on Wednesday.
The greenback saw a significant boost on Wednesday following positive US Gross Domestic Product (GDP) and employment readings, prompting some traders to scale back their expectations for interest rate cuts by the Federal Reserve in September, which bolstered the dollar.
The likelihood of a rate cut in September has dropped to 43.2% from 63.3% as of Tuesday, based on the CME FedWatch tool.
Powell indicated that policy adjustments might not be necessary at this time, citing a “solid economy” with inflation slightly above target levels.
Daily Digest Market Mover: Pound Sterling Weakens Against Peers
- The pound is expected to underperform against other major currencies, with the exception of some North American currencies, on Thursday. This week has seen the UK currency remain largely stable, likely due to a quiet economic calendar.
- Ahead of the Bank of England’s interest rate announcement next week, investors are likely to be responsible for increased volatility in the pound.
- Traders are optimistic that the BOE will reduce interest rates by 25 basis points (bps) to 4%. However, the Central Bank faces challenges in balancing interest rates amidst rising price pressures and a slowing job market.
- Recent economic data from the UK reveals a slowing hiring trend, attributed to heightened employer contributions to social security.
- The GBP/USD pair’s future movements will be influenced by the upcoming US Non-Farm Payroll (NFP) and ISM Manufacturing PMI data for July, due to be released on Friday. Economists are predicting a gain of 110,000 jobs in July, which is below the 147,000 jobs created in June. While ISM Manufacturing PMI is forecasted to rise slightly from 49.0 to 49.5 in June, indicating a continuing but moderating decline in manufacturing activity.
- In a related note, the US has entered into a trade agreement with another key partner. President Trump announced a new tariff arrangement with South Korea, imposing a 15% tariff on imports, a reduction from the previously threatened 25%.
Technical Analysis: Pound Sterling Finds Temporary Support Near 1.3230
The pound is finding some support near a two-month low of around 1.3230 against the US dollar on Thursday. Yet, the outlook for the GBP/USD pair remains bearish, having broken below the neckline of a bearish head and shoulders chart pattern, which is positioned around 1.3370.
The 20-day exponential moving average (EMA) of approximately 1.3442 indicates a bearish short-term trend.
The 14-day relative strength index (RSI) is significantly below 40.00, indicating the currency is nearing a level seen as oversold, thus maintaining the bearish momentum.
Should the pound decline further, the May 12 low of 1.3140 will act as an important support level, while the psychological barrier of 1.3500 may serve as resistance for any rallies.
