Pound Sterling stays below 1.2500 ahead of BoE’s policy decision – Crypto News – Crypto News
Connect with us
GBP/USD faces barricades around 1.1250 as hawkish Fed bets soar GBP/USD faces barricades around 1.1250 as hawkish Fed bets soar

others

Pound Sterling stays below 1.2500 ahead of BoE’s policy decision – Crypto News

Published

1 year ago

on

  • The Pound Sterling skids below 1.2500 ahead of the Bank of England’s decision.
  • Investors expect that the BoE could provide a concrete timeframe for rate cuts.
  • Fed policymakers are not comfortable with rate-cut projections for this year.

The Pound Sterling (GBP) extends its downside to 1.2470 against the US Dollar (USD) in Thursday’s London session. The GBP/USD pair is under pressure amid caution ahead of the Bank of England’s (BoE) interest rate decision, which will be announced at 11:00 GMT, and dismal market mood. 

The BoE is widely anticipated to keep borrowing rates steady at 5.25% for the sixth time straight, which makes the interest rate guidance a crucial trigger for the next move in the Pound Sterling.

Financial markets expect that the BoE could turn slightly dovish on the interest rate outlook as consistently easing United Kingdom (UK) price pressures suggest that inflation is on course to return sustainably to the desired rate of 2%. The BoE is expected to remain vigilant on wage growth, which is almost double the rate required for inflation to return to the 2% target.

Investors expect eight of the nine-member-led Monetary Policy Committee (MPC) will support keeping interest rates steady, while policymaker Swati Dhingra is likely to continue with her rate-cut stance. Traders remain divided over BoE Deputy Governor Dave Ramsden’s stance on interest rates, as he remained quite optimistic about progress in the disinflation process in his latest commentary in April.

Daily digest market movers: Pound Sterling weakens ahead of BoE meeting

  • The Pound Sterling remains on the back foot as the market sentiment turns cautious due to hawkish interest rate guidance from Federal Reserve (Fed) policymakers. S&P 500 futures have posted some losses in the Asian session, exhibiting a decline in investors’ risk appetite. The overall scenario has improved the US Dollar’s appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds gains near 105.60.
  • On Wednesday, Boston Fed Bank President Susan Collins said that surprise upticks in recent inflation and activity readings suggest that the central bank needs to maintain interest rates at their current levels until they get greater confidence that inflation will sustainably return to the 2% target. Collins added, “A slowdown in activity will be needed to ensure that demand is better aligned with supply for inflation to return durably,” Reuters reported.
  • This week, Minneapolis Fed Bank President Neel Kashkari also emphasized the need to keep interest rates at their current levels for the entire year. Kashkari cited concerns over stalling progress in disinflation due to housing market strength.
  • Investors remain leaning towards interest rate guidance from Fed speakers due to the absence of tier-1 United States economic data. 
  • On the UK front, investors await the March month and preliminary Q1 Gross Domestic Product (GDP) data, which will be published on Friday. Economists expect that the UK economy expanded by 0.4% in the January-March period after contracting by 0.3% in the last quarter of 2023. This suggests that the technical recession in the second half of 2023 was shallow. 
  • Apart from the GDP data, investors will also focus on the monthly factory and preliminary Q1 Total Business Investment data. The factory data provides cues about overall demand from the domestic and the overseas market.

Technical Analysis: Pound Sterling slips below 20-day EMA

The Pound Sterling extends its losing streak for the third trading session on Thursday. The GBP/USD is under pressure due to multiple headwinds. The Cable resumes its downside journey after facing strong resistance above the neckline of the Head and Shoulder (H&S) chart pattern formed on a daily timeframe. On April 12, the pair fell sharply after breaking below the neckline of the H&S pattern plotted from December 8 low around 1.2500.

The near-term outlook is uncertain as the asset has dropped below the 20-day Exponential Moving Average (EMA), which trades around 1.2510.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting indecisiveness among market participants.

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, 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.

 

Related Topics:
Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending