Pound Sterling trades stably as BoE members signal uncertainty on interest rate outlook
- The Pound Sterling trades broadly stable against its peers after BoE members' speeches before the Treasury Committee.
- BoE Governor Bailey hints at high doubts over the pace of interest rate cuts.
- Investors await key US ADP Employment and ISM Services PMI data for August.
The Pound Sterling (GBP) trades calmly against its major peers on Thursday as the Bank of England (BoE) officials delivered mixed remarks on the monetary policy outlook before the House of Commons’ Treasury Committee the previous day.
BoE Governor Andrew Bailey signaled significant uncertainty on the pace of interest rate cuts in the near term, citing risks to both inflation and the labor market. “I think path for rates will continue to be downwards, but there is considerably more doubt on how fast we can cut rates,” Bailey said. He added that “I'm more concerned about downside job risks than Monetary Policy Committee (MPC) members who voted to keep rates on hold”.
Speaking at the hearing of the Treasury Committee, BoE Deputy Governor Clare Lombardelli and BoE monetary policymaker Megan Greene reiterated a hawkish guidance on the interest rate outlook, citing upside inflation risks. Lombardelli warned that further monetary policy expansion could derail the central bank’s goal of bringing inflation sustainably down to the 2% target. Investors should note that both BoE officials supported holding interest rates steady in the policy meeting in August.
On the contrary, BoE MPC member Alan Taylor argued in favor of reducing interest rates at a faster pace, citing that the recent increase in inflation is unlikely to be persistent. Taylor favored a bigger 50 basis point (bp) interest rate reduction in the August meeting and revised his vote to a 25 bps decline to get a majority vote.
Regarding surging UK gilt yields, BoE Governor Bailey said that the situation seems to be global, not specific to the United Kingdom (UK), as the government has not raised a significant debt.
Daily digest market movers: Pound Sterling edges lower against US Dollar
- The Pound Sterling ticks down to near 1.3435 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair faces a slight selling pressure as the US Dollar stabilizes after a corrective move on Wednesday.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 98.25.
- The Greenback fell sharply on Wednesday after the release of the US JOLTS Job Openings data for July, which missed estimates. Fresh jobs posted by US employers came in at 7.18 million, lower than expectations of 7.4 million, and the prior reading of 7.35 million. Weak US job openings data intensified expectations supporting interest rate cuts by the Federal Reserve (Fed) for the upcoming September monetary policy meeting.
- According to the CME FedWatch tool, the probability for the Fed to cut interest rates in September has increased to 97.6% from 92% seen before the US JOLTS Job Openings data release.
- In Thursday’s session, investors will focus on the US ADP Employment Change and the US ISM Services PMI data for August, which will be published during North American trading hours.
- The ADP is expected to show that new 65K workers were added by the US private sector in August, significantly lower than 104K in July. Meanwhile, the US ISM Services PMI is expected to come in at 51.0, higher than the prior release of 50.1.
- On a broader note, the outlook of the US Dollar is uncertain amid doubts surrounding the future of tariffs imposed by US President Donald Trump since his return to the White House. Trump announced on Tuesday that he will push the tariff case to the Supreme Court immediately after the appeals court ruled against a majority of additional imports. A panel of judges called tariffs “illegal” and accused Trump of improperly invoking the emergency law.
Technical Analysis: Pound Sterling stays below 20-day EMA
The Pound Sterling ticks down to near 1.3435 against the US Dollar on Thursday. The near-term trend of the GBP/USD pair has turned bearish as it trades below the 20-day Exponential Moving Average (EMA), which is around 1.3463.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the August 14 high near 1.3600 will act as a key barrier.
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.
추천 기사
