Pound Sterling recovery stalls near 1.2700 with US inflation in focus
- The Pound Sterling trades sideways against the US Dollar as investors shift focus to the US core PCE inflation data for May.
- UK’s high wage inflation refrains BoE policymakers from committing to interest rate cuts.
- Uncertainty over the UK’s parliamentary elections will keep the Pound Sterling on tenterhooks.
The Pound Sterling (GBP) exhibits a lackluster performance against the US Dollar (USD) in Wednesday’s London session. The recovery move in the GBP/USD pair from the more than five-week low of 1.2620 appears to have stalled near the round-level resistance of 1.2700. Investors shift focus towards the United States (US) core Personal Consumption Expenditures Price Index (PCE) data for May, which will be published on Friday.
Investors will pay close attention to the US core PCE inflation data as it is the Federal Reserve’s (Fed) preferred inflation gauge. This data will provide fresh cues about when and how far interest rates will be reduced this year. Annually, the underlying inflation data is estimated to have softened to 2.6% in May from the prior release of 2.8%, with monthly figures growing at a slower pace of 0.1% from 0.2% in April.
Currently, investors expect the Fed to kickstart its rate-cutting cycle at the September meeting and extend it further in November or December.
On the contrary, Fed policymakers continue to advocate maintaining interest rates at their current levels for longer until they get evidence that inflation will return to the desired rate of 2%. Fed officials want to see inflation declining for months to gain confidence in rate cuts and, therefore, delivering a hawkish guidance.
On Tuesday, Fed Governor Michelle Bowman supported the continuation of the current policy framework for some time to tame price pressures. She kept hopes of more rate hikes on the table if disinflation stalls or reverses. When asked about timing for rate cuts, Bowman said she doesn’t see any this year.
Daily digest market movers: Pound Sterling weakens against Australian Dollar
- The Pound Sterling performs strongly against a majority of its peers as fears of policy divergence have intensified due to strong wage growth in the United Kingdom. However, the Pound weakens against the Australian Dollar after Australia’s monthly Consumer Price Index (CPI) rose strongly by 4.0% from expectations of 3.8% and the prior release of 3.6%, which weighed on expectations of more rate cuts by the Reserve Bank of Australia (RBA).
- Unlike the Swiss National Bank (SNB), the Bank of Canada (BoC), and the European Central Bank (ECB), which have begun their policy-easing cycle, the Bank of England (BoE) has not committed to rate cuts in the near term.
- The UK’s high wage growth keeps inflation persistent in the service sector, making interest rate cuts inappropriate in the current situation. Although headline inflation has returned to the desired rate of 2%, officials see service inflation as a preferred measure for decision-making on interest rates and want it to decline for months to gain confidence in lowering borrowing rates.
- Currently, investors expect that the BoE will start reducing interest rates from the August meeting. Meanwhile, political uncertainty in the UK economy is expected to keep the Pound Sterling on its toes. Market participants expect that the opposition Labour Party has the upper hand in parliamentary elections on the Conservative Party. The first round of UK parliamentary elections will commence on July 4.
Pound Sterling Price Today:
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | 0.12% | 0.13% | 0.08% | -0.42% | 0.15% | 0.16% | |
| EUR | -0.21% | -0.10% | -0.12% | -0.17% | -0.62% | -0.05% | -0.07% | |
| GBP | -0.12% | 0.10% | 0.00% | -0.05% | -0.52% | 0.07% | 0.05% | |
| JPY | -0.13% | 0.12% | 0.00% | -0.04% | -0.54% | 0.06% | 0.05% | |
| CAD | -0.08% | 0.17% | 0.05% | 0.04% | -0.53% | 0.09% | 0.08% | |
| AUD | 0.42% | 0.62% | 0.52% | 0.54% | 0.53% | 0.57% | 0.57% | |
| NZD | -0.15% | 0.05% | -0.07% | -0.06% | -0.09% | -0.57% | 0.00% | |
| CHF | -0.16% | 0.07% | -0.05% | -0.05% | -0.08% | -0.57% | -0.00% |
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).
Technical Analysis: Pound Sterling faces resistance near 1.2700
The Pound Sterling faces pressure near 1.2700 against the US Dollar. The GBP/USD pair continues to find sellers near the 20-day Exponential Moving Average (EMA), which trades around 1.2700. Meanwhile, the 50-day EMA is acting as support at around 1.2670.
The Cable trades above the 61.8% Fibonacci retracement support at 1.2667, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a consolidation ahead.
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.
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