Pound Sterling declines against US Dollar despite partial US government shutdown
- The Pound Sterling drops to near 1.3440 against the US Dollar as the Greenback rebounds strongly.
- The US Dollar gains even as Washington faces mass lay-offs risks amid the government shutdown.
- Investors await speech from BoE Governor Bailey at 17:30 GMT.
The Pound Sterling (GBP) trades 0.3% lower to near 1.3440 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD pair faces selling pressure as the US Dollar rebounds strongly despite growing risks that the White House would be forced to make mass lay-offs in the wake of a partial United States (US) government shutdown.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gains 0.55% to near 98.25.
Over the weekend, the White House signaled that mass lay-offs of federal workers are around the corner as the short-term funding bill is unlikely to be passed by the US Senate in the voting on Monday. “US President Donald Trump and White House budget director Russ Vought are lining things up and getting ready to act if they have to, but hoping that they don’t," National Economic Council Director Kevin Hassett told at CNN’s "State of the Union" program.
Republicans struggle to force Democrats to support the stopgap bill as the latter are demanding that the White House to make a permanent extension of enhanced premium tax credits to help Americans purchase private health insurance through the Affordable Care Act and ensure that it will not try to unilaterally cancel spending agreed to in any deal, Reuters reported.
Meanwhile, US Senators are scheduled to meet again on Monday to vote on the stopgap bill. Recent comments from Democrats have signaled that they are unlikely to vote in favour of supporting the short-term funding bill. Democratic Senator Ruben Gallego told CNN, "At this point, no," after he was asked whether lawmakers are close to reaching a deal.
Daily digest market movers: Pound Sterling will be influenced by BoE Bailey’s speech
- The Pound Sterling exhibits a mixed performance against its major peers at the start of the week, with investors await the speech from Bank of England (BoE) Governor Andrew Bailey at Scotland's Global Investment Summit 2025 in Edinburgh, Scotland.
- Investors will pay close attention to BoE Bailey’s words to get cues about whether the United Kingdom (UK) central bank will cut interest rates in the remainder of the year. Financial market participants expect the BoE to perform a delicate balancing act in upcoming policy meetings amid sticky inflationary pressures and cooling labour market conditions.
- At the August policy meeting, the BoE stated that inflation would peak around 4% in September. However, Deputy Governor Clare Lombardelli and Monetary Policy Committee (MPC) member Catherine Mann warned last week that recent inflation shocks should not be considered as temporary.
- Bank of England’s (BoE) Decision Maker Panel (DMP) survey showed on Wednesday that one-year forward CPI inflation expectations by the UK firms edged slightly higher to 3.5% in the quarter ending September.
- On the economic data front, the revised UK S&P Global PMI report for September showed that activities in the services sector grew at a slower pace than had been anticipated earlier. The Services PMI came in at 50.8, lower than the preliminary reading of 51.9. In August, the Services PMI recorded at 54.2.
Technical Analysis: Pound Sterling faces pressure from 20-day EMA
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The Pound Sterling trades inside Friday’s trading range around 1.3440 against the US Dollar at the present time. The GBP/USD pair struggles to return above the 20-day Exponential Moving Average (EMA), which trades around 1.3476.
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 September 17 high of 1.3726 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.
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