Select Language

Pound Sterling recovers even as Bank of England looks ready to resume rate-cut cycle

Breaking news

Pound Sterling recovers even as Bank of England looks ready to resume rate-cut cycle

  • X
  • facebook
  • LINE
  • RSS

  • X
  • facebook
  • LINE
  • RSS
New update 2024.11.07 16:47
Pound Sterling recovers even as Bank of England looks ready to resume rate-cut cycle

update 2024.11.07 16:47

  • The Pound Sterling rebounds strongly against the US Dollar, which corrects after Wednesday's rally.
  • The US Dollar should remain well-supported by Trump's victory in the US presidential election.
  • Investors await the Fed and the BoE's monetary policy decisions, with markets expecting both central banks to cut interest rates by 25 bps.

The Pound Sterling (GBP) bounces sharply to near 1.2935 against the US Dollar (USD) in Thursday's London session after refreshing an almost 11-week low near 1.2830 on Wednesday. The GBP/USD pair rebounds as the US Dollar (USD) corrects slightly after a sharp rally. The US Dollar Index (DXY), which gauges Greenback's value against six major currencies, drops to near 104.90 after posting a fresh four-month high around 105.40.

The US Dollar had a strong run-up on Wednesday due to a landslide victory of Republican candidate Donald Trump over his Democratic rival Kamala Harris. The appeal of the Greenback improved sharply as Trump has vowed to raise tariffs on imports by 10% universally and lower corporate taxes if he wins the presidential elections, measures that traders interpreted as a positive for the US Dollar.

Higher tariffs could push demand for domestic output, while corporate lower taxes would leave more money in the hands of corporations, which will boost investments. A scenario that will result in higher investments, spending and labor demand will escalate price pressures and allow the Federal Reserve (Fed) to take a hawkish stance on interest rates.

To get meaningful cues about the impact of Trump's victory on the United States (US) interest rate path and the inflation outlook, investors will focus on the Fed's policy meeting at 19:00 GMT. Officials are widely anticipated to cut interest rates by 25 basis points (bps) to the 4.50%-4.75% range. 

Daily digest market movers: Pound Sterling outperforms major peers

  • The Pound Sterling performs strongly against its major peers, except Asia-Pacific currencies, ahead of the Bank of England's (BoE) monetary policy decision at 12:00 GMT. The BoE is expected to cut interest rates by 25 basis points (bps) to 4.75%, with a 7-2 vote split. The two divergent votes of the Monetary Policy Committee (MPC) are seen supporting leaving interest rates at the current levels.
  • This will be the second interest rate cut by the BoE this year. The BoE started reducing interest rates in August by cutting borrowing rates by 25 bps, but opted to keep them steady in September.
  • The press conference of BoE Governor Andrew Bailey after the policy decision will be interesting to watch. Bailey is expected to face a slew of questions regarding the impact on monetary policy and inflation from both Donald Trump's victory in the US presidential election and the Autumn Forecast Statement presented last week.
  • According to the National Institute of Economic and Social Research (NIESR), the growth rate of the UK economy could be more than halved to 0.4% if Trump implements tariff hikes as he promised in the election campaign.

Technical Analysis: Pound Sterling stays above 200-day EMA

The Pound Sterling rebounds sharply after posting a fresh 11-week low near 1.2830 against the US Dollar. The GBP/USD pair recovered after discovering buying interest near the 200-day Exponential Moving Average (EMA) around 1.2860.

However, the near-term trend remains bearish as the 20-day and 50-day Exponential Moving Average (EMAs)around 1.2990 and 1.3030, respectively, are declining.

The breakdown from the lower boundary of a rising channel on the daily time frame has also added to evidence supporting more downside.

The 14-day Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would resume if the RSI (14) fails to hold this level.

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 psychological figure of 1.3000.

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.

 


Date

Created

 : 2024.11.07

Update

Last updated

 : 2024.11.07

Related articles


Show more

FXStreet

Financial media

arrow
FXStreet

FXStreet is a forex information website, delivering market analysis and news articles 24/7.
It features a number of articles contributed by well-known analysts, in addition to the ones by its editorial team.
Founded in 2000 by Francesc Riverola, a Spanish economist, it has grown to become a world-renowned information website.

Was this article helpful?

We hope you find this article useful. Any comments or suggestions will be greatly appreciated.  
We are also looking for writers with extensive experience in forex and crypto to join us.

please contact us at [email protected].

Thank you for your feedback.
Thank you for your feedback.

Most viewed

SEK can prove a victim of the looming trade war - ING

The market is looking for a 50bp rate cut from Sweden's Riksbank today, ING's FX Analyst Chris Turner notes.
New
update2024.11.07 19:32

NZD/USD: Has a chance to trop towards 0.5900 - UOB Group

The New Zealand Dollar (NZD) could drop to 0.5900 before the risk of a more sustained recovery increases.
New
update2024.11.07 19:28

EUR: Collapse of the German government says it all - ING

The German government has collapsed. The bone of contention in the end was the use of fiscal stimulus and disagreement over the suspension of the German debt brake, ING's FX Analyst Chris Turner notes.
New
update2024.11.07 19:25

ECB Call Update: Lowering the central-case terminal rate to 1.50% - Deutsche Bank

Central-case terminal rate forecast was lowered from 2.25% to 1.50%, Deutsche Bank's team of economists note.
New
update2024.11.07 19:08

Eurozone Retail Sales increase by 2.9% YoY in September vs. 1.3% expected

Eurozone's annual Retail Sales increased by 2.9% in September after rising by a revised 2.4% in August, the official data released by Eurostat showed on Thursday.
New
update2024.11.07 19:05

EUR/GBP recovers intraday losses ahead of BoE policy decision

The EUR/GBP reverses intraday losses and bounces back to near 0.8300 in the European trading session on Thursday.
New
update2024.11.07 19:04

AUD/USD: Chance to decline to 0.6500 - UOB Group

Potential for the Australian Dollar (AUD) to decline to 0.6500; the likelihood of a sustained break below this level is not high, UOB Group's FX analysts Quek Ser Leang and Lee Sue Ann note.
New
update2024.11.07 19:00

USD/SGD: To consolidate on the day - OCBC

USD/SGD rose, tracking the rise in broad USD, UST yields as Trump won elections.
New
update2024.11.07 18:55

EUR/USD rises ahead of Fed meeting, Trump 2.O keeps downside bias intact

EUR/USD rebounds to near 1.0770 in European trading hours on Thursday.
New
update2024.11.07 18:51

Gold steadies after three percent decline on Trump victory

Gold (XAU/USD) steadies in the $2,660s on Thursday after falling three percent on the previous day when now President-elect Donald Trump had secured a victory in the US presidential election.
New
update2024.11.07 18:50

Disclaimer:arw

All information and content provided on this website is provided for informational purposes only and is not intended to solicit any investment. Although all efforts are made in order to ensure that the information is correct, no guarantee is provided for the accuracy of any content on this website. Any decision made shall be the responsibility of the investor and Myforex does not take any responsibility whatsoever regarding the use of any information provided herein.

The content provided on this website belongs to Myforex and, where stated, the relevant licensors. All rights are reserved by Myforex and the relevant licensors, and no content of this website, whether in full or in part, shall be copied or displayed elsewhere without the explicit written permission of the relevant copyright holder. If you wish to use any part of the content provided on this website, please ensure that you contact Myforex.

  • Facebook
  • Twitter
  • LINE

Myforex uses cookies to improve the convenience and functionality of this website. This website may include cookies not only by us but also by third parties (advertisers, log analysts, etc.) for the purpose of tracking the activities of users. Cookie policy

I agree
share
Share
Cancel