GBP/USD jumps past 1.3500 as Powell leans dovish
- GBP/USD rallies near 1.3500 as Fed Chair Jerome Powell hints at renewed easing cycle during Jackson Hole speech.
- Powell: “Downside risks to the labor market are rising,” boosting September cut odds from 75% to 90%.
- Fed balance: tariffs could drive one-time inflation, while stagflation risks emerge from opposing inflation and employment pressures.
The GBP/USD rallies as the Fed Chair Jerome Powell takes the stand at the Jackson Hole Symposium. At the time of writing, the pair trades above 1.3500 after Powell hints that the Fed might be ready to resume its easing cycle.
Markets price in higher odds of a September cut after Powell warns of labor market downside risks
The Fed Chair, Jerome Powell's speech, has increased the odds for a Fed rate cut at the September meeting. Market participants have fully priced in 50 basis points (bps) by year-end, and the chances for a September cut rose from 75% to 90%.
Powell said that “downside risks to the labor market are rising” and that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” He added that “the stability of the unemployment rate and other labor market measures allows us to proceed carefully.”
The Fed Chair said that tariffs could create a “one-time” effect in inflation and that it would take some time to be reflected. He mentioned that risks of inflation are tilted to the upside and risks of employment to the downside. Therefore, a possible stagflation scenario looms.
GBP/USD Price Forecast: Technical outlook
The GBP/USD climbed sharply above 1.3500, opening the door for further upside. If the pair rises past 1.3550, it puts into play the August 14 peak of 1.3594 ahead of 1.3600. Conversely, if the pair dives back below 1.3500, the next area of demand would be the August high of 1.3482, before testing 1.3450.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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