- The Pound Sterling gains against its major peers, investors await the UK Q2 GDP data to be released on Thursday.
- UK firms have been reluctant to increase hiring after the increase in employers’ contributions to social security schemes.
- Traders raise Fed’s interest rate cut bets for the September meeting after the release of fresh US inflation data.
The Pound Sterling (GBP) outperforms its major peers on Wednesday, while investors await the preliminary United Kingdom (UK) Q2 Gross Domestic Product (GDP) data, which will be released on Thursday.
Economists expect the UK economy to have grown at a marginal pace of 0.1%, much lower than the 0.7% expansion seen in the previous quarter. On year, the economy is seen rising by 1%, less than the Bank of England’s (BoE) projections of 1.25% announced in the monetary policy outcome last week. In the first quarter of the year, the economy grew at an annual pace of 1.3%.
Weakening GDP growth would add further pressure to Bank of England (BoE) officials at a time when they are worried about elevated inflationary pressures. Last week, the BoE also raised one-year forward Consumer Price Index (CPI) projections to 2.7% from 2.4%.
Meanwhile, cooling labor market conditions due to an increase in employers’ contributions to social security schemes is also a major concern for BoE policymakers. The latest labor market report showed that the estimated number of vacancies fell by 44K to 718K in the quarter from May to July. The early estimate of payrolled employees for July decreased by 8,000 on the month.
According to the report, feedback from the vacancy survey suggested that some firms may not be recruiting new workers or replacing workers who have left.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.35% | -0.55% | -0.21% | -0.10% | -0.38% | -0.55% | -0.41% | |
| EUR | 0.35% | -0.15% | 0.10% | 0.24% | -0.03% | -0.22% | -0.05% | |
| GBP | 0.55% | 0.15% | 0.30% | 0.38% | 0.11% | 0.03% | 0.10% | |
| JPY | 0.21% | -0.10% | -0.30% | 0.10% | -0.19% | -0.34% | -0.21% | |
| CAD | 0.10% | -0.24% | -0.38% | -0.10% | -0.30% | -0.41% | -0.28% | |
| AUD | 0.38% | 0.03% | -0.11% | 0.19% | 0.30% | -0.19% | -0.02% | |
| NZD | 0.55% | 0.22% | -0.03% | 0.34% | 0.41% | 0.19% | 0.18% | |
| CHF | 0.41% | 0.05% | -0.10% | 0.21% | 0.28% | 0.02% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily digest market movers: Pound Sterling trades higher against US Dollar
- The Pound Sterling advances to near 1.3565 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair extends gains as the US Dollar faces selling pressure, following the increase in traders’ bets supporting interest rate cuts by the Federal Reserve (Fed) in the September policy meeting.
- At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near 97.70. This is the lowest level seen in two weeks.
- According to the CME FedWatch tool, the probability of the Fed to cut interest rates in the September meeting has increased to 94% from around 86% recorded on Monday.
- Traders raise Fed dovish bets after the US CPI report didn’t show any signs of a significant pass-through of the impact of tariffs into prices. Inflation rose almost in line with expectations: headline inflation grew at a steady pace of 2.7% on year, lower than expectations of 2.8%. The core CPI – which excludes volatile food and energy items – rose at a faster pace of 3.1% compared to expectations of 3% and the prior reading of 2.9%.
- Contrary to market expectations, some analysts believe that the September rate cut is not certain as there is one more employment and inflation data before the monetary policy meeting next month. “As the last payroll shows, one report can be sufficient to move the policy debate to one side or another. So, we think we still have to wait until the remaining data to print before making a strong case about a rate cut or a hold decision,” analysts at Commonwealth Bank of Australia said.
- In Wednesday’s session, investors will focus on speeches from Richmond Fed President Thomas Barkin, Atlanta Fed President Raphael Bostic, and Chicago Fed President Austan Goolsbee for fresh cues on the US monetary policy outlook.
Technical Analysis: Pound Sterling aims to break above 1.3600
The Pound Sterling extends its upside move to near 1.3570 against the US Dollar on Wednesday. The near-term trend of the GBP/USD pair is bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades around 1.3425.
The 14-day Relative Strength Index (RSI) approaches 60.00. A fresh bullish momentum would emerge if the RSI breaks above this level.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the July 1 high near 1.3790 will act as a key barrier.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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