Pound Sterling slumps against US Dollar as traders pare Fed dovish bets
- The Pound Sterling slides to near 1.3200 against the US Dollar as the Greenback trades firmly.
- Traders pare Fed interest-rate cut bets as Chairman Powell warns of upside inflation risks.
- Investors expect the BoE to cut interest rates next week.
The Pound Sterling (GBP) slides to near 1.3200 against the US Dollar (USD) during the European trading session on Thursday, extending its losing streak for the sixth trading day. The GBP/USD pair faces selling pressure as the US Dollar trades firmly, with the US Dollar Index (DXY), holding onto gains near a fresh two-month high around 100.00 posted on Wednesday.
The Greenback strengthens as upbeat US Gross Domestic Product (GDP) and employment data, as well as Federal Reserve (Fed) Chair Jerome Powell’s support for keeping interest rates at their current levels, have forced traders to pare bets supporting interest-rate cuts by the Fed in the September meeting, supporting the US Dollar.
According to the CME FedWatch tool, the probability for the Fed to cut interest rates in September has fallen to 43.2% from 63.3% seen on Tuesday.
Jerome Powell signaled that monetary policy adjustments are inappropriate as the economy is in a “solid position” and inflation is “somewhat above target”.
The US Bureau of Economic Analysis (BEA) showed on Wednesday that the economy grew at a robust pace of 3% on an annualized basis, compared to estimates of 2.4%. In the first quarter of the year, the US GDP declined by 0.5%.
Meanwhile, the ADP reported that the private sector added 104K fresh workers, significantly higher than estimates of 78K. In June, the laborforce was reduced by 23K employees.
Daily digest market movers: Pound Sterling trades lower against its peers
- The Pound Sterling underperforms its peers, except the Japanese Yen (JPY), on Thursday. The British currency has traded broadly stable this week due to a light economic calendar in the United Kingdom (UK).
- Investors brace for significant volatility in the Pound Sterling ahead of the Bank of England’s (BoE) interest rate decision, which will be announced next week.
- Traders are increasingly confident that the BoE will reduce interest rates by 25 basis points (bps) to 4%. Still, the UK central bank might need to perform a delicate balancing act while discussing interest rates amid escalating price pressures and cooling labor market conditions.
- The Latest economic indicators in the UK have signaled a slowdown in the hiring trend due to an increase in the employers’ contribution to social security schemes.
- Going forward, the GBP/USD pair will be influenced by the US Nonfarm Payrolls (NFP) and the ISM Manufacturing PMI data for July, which is scheduled to be released on Friday. Economists expect the US economy to have added 110K fresh workers in July, lower than the 147K jobs created in June. The ISM Manufacturing PMI is seen higher at 49.5 from 49.0 in June, suggesting that activity in the US factory sector continued to decline but at a modest pace.
- Washington has reached a trade agreement with one more of its key trading partners. On Wednesday, US President Trump announced a tariff deal with South Korea by which the US will charge 15% tariffs on Korean imports. The baseline tariff rate is lower than the 25% threatened by Trump at the start of the month.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.16% | 0.20% | 0.34% | 0.17% | -0.02% | -0.04% | -0.07% | |
| EUR | 0.16% | 0.34% | 0.50% | 0.33% | 0.11% | 0.12% | 0.10% | |
| GBP | -0.20% | -0.34% | 0.16% | -0.01% | -0.24% | -0.22% | -0.25% | |
| JPY | -0.34% | -0.50% | -0.16% | -0.16% | -0.34% | -0.31% | -0.38% | |
| CAD | -0.17% | -0.33% | 0.00% | 0.16% | -0.13% | -0.22% | -0.24% | |
| AUD | 0.02% | -0.11% | 0.24% | 0.34% | 0.13% | 0.02% | -0.03% | |
| NZD | 0.04% | -0.12% | 0.22% | 0.31% | 0.22% | -0.02% | -0.03% | |
| CHF | 0.07% | -0.10% | 0.25% | 0.38% | 0.24% | 0.03% | 0.03% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling stays below 20-day EMA
The Pound Sterling extends its downside to near 1.3200 against the US Dollar on Thursday. The outlook of the GBP/USD pair remains bearish as it has broken down below the neckline of a bearish Head and Shoulder (H&S) chart pattern. The neckline of the H&S formation is plotted around 1.3370.
The downward-sloping 20-day Exponential Moving Average (EMA), near 1.3442, suggests that the near-term trend is bearish.
The 14-day Relative Strength Index (RSI) oscillates well below 40.00, almost reaching oversold levels, indicating that a bearish momentum is intact.
Looking down, the May 12 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 will act as a key barrier.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
