Created
: 2024.11.04
2024.11.04 18:45
The Pound Sterling (GBP) gains sharply against the US Dollar (USD) in London trading hours on Monday but continues to struggle near the psychological resistance of 1.3000. The GBP/USD pair aims for a firm footing above the key support of 1.2900 as the US Dollar plunges ahead of the United States (US) presidential election on Tuesday.
The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, tumbles to near 103.60, the lowest level in almost two weeks.
The Greenback was knocked out after the Des Moines Register/Mediacom Iowa Poll showed that Democratic candidate Kamala Harris is up three points over former US President Donal Trump in a state where Trump won clearly in 2016 and 2020. Meanwhile, the majority of national polls show a knife-edge race between both candidates.
Trump's victory is expected to weigh on risk-perceived currencies as he will likely favor protectionist policies to boost domestic business activity. Trump vowed to levy a 10% universal tariff on all economies, except for China, which is expected to face even higher duties.
Apart from the US election, investors will also focus on the Federal Reserve's (Fed) policy decision, which will be announced on Thursday. The Fed is expected to cut interest rates again, but at a slower pace of 25 basis points (bps). In September, the Fed started the policy-easing cycle with a larger-than-usual 50 bps cut. Investors will pay close attention to the Fed's guidance for the December policy meeting.
The Pound Sterling holds right above a fresh 11-week low of 1.2850 against the US Dollar, which also aligns with the 200-day Exponential Moving Average (EMA). While the pair seems to have found a cushion near the 200-day EMA around 1.2850, the near-term trend remains uncertain as it stays below the 50-day EMA around 1.3060.
The pair remains at make or a break near the lower boundary of the Rising Channel chart formation on the daily time frame.
The 14-day Relative Strength Index (RSI) rebounds above 40.00, signaling a buying interest at lower levels.
Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the 50-day EMA around 1.3060.
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.
Created
: 2024.11.04
Last updated
: 2024.11.04
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