Created
: 2024.08.23
2024.08.23 18:10
The Pound Sterling (GBP) extends its winning streak for a seventh trading session against the US Dollar (USD) on Friday. The GBP/USD pair trades within a touching distance of a year-to-date high of 1.3130 as the US Dollar (USD) struggles to hold its Thursday's upward move, which was mostly driven by better-than-projected flash United States (US) S&P Global PMI data for August.
The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, hovers near 101.40 and is expected to perform sideways ahead of Federal Reserve (Fed) Chair Jerome Powell's speech at 14:00 GMT in the Jackson Hole (JH) Symposium.
Investors will look for cues about the potential size of interest rate cuts in September, given that the Fed is widely anticipated to pivot to policy normalization. Market participants will also expect some interest-rate guidance and economic performance for the rest of the year.
Philadelphia Fed Bank President Patrick Harker said in an interview at the JH event on Thursday that the central bank should focus more on a steady course of easing, which should be started from September, rather than the size of policy action, reported Reuters.
Separately, Boston Fed Bank President Susan Collins also showed support for interest rate cuts in September. Collins remained confident about the Fed achieving its goals without triggering a recession.
The Pound Sterling is inch far from revisiting a more-than-two-year high of 1.3140. The GBP/USD pair moves higher in a Rising Channel chart pattern in which each pullback is considered a buying opportunity by market participants. All short-to-long Exponential Moving Average (EMA) are sloping higher, suggesting that the overall trend is bullish.
The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. Still, it has reached overbought levels at around 70.00, increasing the chances of a corrective pullback. On the downside, the psychological level of 1.3000 will be the crucial support for the Pound Sterling bulls.
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, aka '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.
Created
: 2024.08.23
Last updated
: 2024.08.23
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