Pound Sterling outperforms US Dollar amid US government shutdown risks
- The Pound Sterling climbs to near 1.3450 against the US Dollar as the US government faces shutdown risks.
- BoE’s Dhingra supports quick interest rate cuts amid slowing UK job demand.
- Investors brace for high volatility in the US Dollar amid a data-packed week.
The Pound Sterling (GBP) extends its upside to near 1.3450 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD pair strengthens as the US Dollar slides further, with investors remaining cautious as the deadline of the United States (US) government shutdown approaches.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls further to near 97.95. The DXY faced selling pressure on Thursday after failing to extend an over-a-week-long upside move above 98.60.
The Republican-controlled US Senate is struggling to get the short-term funding bill passed into the House, as Democrats have been demanding that any legislation undo recent Republican cuts to healthcare programs, Reuters reported. The Congress needs to get the bill passed before October to avert a government shutdown, a scenario that could lead to the closure of some institutions on Wednesday.
"If they [Democrats] don’t make a deal, the country closes,” US President Donald Trump said in a telephonic interview over the weekend, as per Reuters.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.17% | -0.32% | -0.56% | -0.10% | -0.27% | -0.01% | -0.13% | |
| EUR | 0.17% | -0.16% | -0.57% | 0.06% | -0.11% | 0.15% | 0.02% | |
| GBP | 0.32% | 0.16% | -0.30% | 0.22% | -0.01% | 0.31% | 0.18% | |
| JPY | 0.56% | 0.57% | 0.30% | 0.51% | 0.33% | 0.44% | 0.49% | |
| CAD | 0.10% | -0.06% | -0.22% | -0.51% | -0.14% | 0.09% | -0.04% | |
| AUD | 0.27% | 0.11% | 0.00% | -0.33% | 0.14% | 0.26% | 0.13% | |
| NZD | 0.00% | -0.15% | -0.31% | -0.44% | -0.09% | -0.26% | 0.02% | |
| CHF | 0.13% | -0.02% | -0.18% | -0.49% | 0.04% | -0.13% | -0.02% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: BoE's Dhingra advocates quick interest rate cuts
- The Pound Sterling trades broadly higher against its major peers at the start of the week. The British currency gains even as Bank of England (BoE) Monetary Policy Committee (MPC) member Swati Dhingra has called for quick interest rate cuts amid growing concerns about the United Kingdom (UK) labour market, in a column published by The Times newspaper on Friday.
- "We can afford to cut rates further and not put additional strain on economic growth without threatening the inflation target,” Dhingra said. She expressed confidence that the UK inflation risks in relation to the Eurozone would fade soon, and therefore, the central bank should be overly cautious on further interest rate cuts.
- Investors should note that Dhingra was one of two MPC members of the Bank of England who voted to hold interest rates steady at 4% in the monetary policy meeting announced in the middle of the ongoing month.
- UK’s job-search website Adzuna also reported earlier in the day that online jobs posted by employers dropped by 1.3% in the 12 months ending in August, the first decline seen since February. A slowdown in the UK job hiring trend could force BoE officials to shift to a dovish stance on the monetary policy outlook. Currently, traders expect the bank to hold interest rates at 4% again in the upcoming policy announcement in November.
- Going forward, investors will focus on the revised UK Q2 Gross Domestic Product (GDP) data, which will be released on Tuesday. Preliminary Q2 GDP report showed that the economy expanded by 0.3% on a quarterly basis.
- On the economic data front, investors will closely monitor a string of US labour market and ISM Purchasing Managers’ Index (PMI) figures this week. The impact of the US job data will be significant on market speculation for the Federal Reserve’s (Fed) monetary policy outlook, as officials have become more concerned about deteriorating labor market conditions than price pressures remaining well above the central bank’s 2% target.
Technical Analysis: Pound Sterling stays above 20-day EMA
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The Pound Sterling jumps to near 1.3445 against the US Dollar on Monday. The GBP/USD pair rebounded after revisiting the seven-week low around 1.3333 last week. However, the near-term outlook of the Cable remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which trades around 1.3490.
The 14-day Relative Strength Index (RSI) rebounds from 40.00. The pair would remain sideways if the RSI stays inside the 40.00-60.00 range.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the September 17 high of 1.3726 will act as a key barrier.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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.
