During European trading on Monday, the British pound (GBP) dipped to approximately 1.3415 against the US dollar (USD). This decline comes as the US dollar stabilizes, thanks to a reduction in trade tensions between the US and China.
At this point, the U.S. Dollar Index (DXY), which measures the dollar against six major currencies, was nearly unchanged at about 98.55. Still, the dollar has been recovering since Friday, following President Trump’s remarks indicating that imposing a 100% tariff on Chinese imports isn’t a viable long-term strategy.
In an interview with Fox Business over the weekend, President Trump stated that while lofty tariffs might be manageable, they lack sustainability. He also expressed a desire for the US to foster positive relations with China, mentioning a forthcoming meeting with Chinese leader Xi Jinping at the Asia-Pacific Economic Cooperation Conference in South Korea later this month. “I think things will go positively with China, but a fair deal is vital. We must be fair,” he was quoted as saying by Bloomberg.
As Trump prepares to meet Xi later this month, investors will closely watch a meeting this week between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng in Malaysia. The talks will likely address recent Chinese export restrictions on rare earth minerals, which have intensified trade disputes.
Market Digest: Anticipation for September UK/US Inflation Data
- The British pound began the week weaker compared to most of its counterparts as investors tread carefully ahead of the upcoming September UK consumer price index (CPI) data set to release Wednesday.
- Attention will focus on the UK inflation figures as they might offer insights into whether the Bank of England (BoE) will decide to lower interest rates again this year. The inflation report is anticipated to show a core CPI rise, projected at an annual rate of 3.7%, slightly up from the previously reported 3.6%.
- During its September policy meeting, the BoE predicted that inflation pressures could peak around 4%.
- Increased signs of price pressure could dampen the outlook for further rate cuts by the BoE this year. In contrast, weaker inflation data might push expectations higher.
- Recent UK labor market statistics for the three months ending in August, revealing a rise in unemployment and slowing wage growth, fueled speculation that the BoE could lower borrowing rates further this year.
- In the US, there’s growing confidence among traders that the Federal Reserve will reduce interest rates by at least 50 basis points before the year’s end. Most are pricing in such cuts, with a 4.8% likelihood of a 75 basis point rate decrease, according to the CME FedWatch tool.
- This week, the market will be watching the September US CPI data, which is scheduled for release on Friday.
Technical Analysis: GBP Expected to Trade Sideways
The British pound was hovering in a narrow range against the US dollar on Monday, around 1.3425, trying to recover above its 20-day exponential moving average (EMA), which sits at around 1.3423.
The 14-day Relative Strength Index (RSI) has been oscillating between 40.00 and 60.00, indicating a sideways market trend.
On the downside, the low from August 1st at 1.3140 marks a significant support level, while the psychological threshold of 1.3500 will serve as a key resistance point.
