The Pound Sterling displayed a notable rise at the beginning of the week, buoyed by anticipations surrounding upcoming monetary policy announcements from the Federal Reserve (Fed) and the Bank of England (BoE). As the market awaits these significant decisions, the GBP/USD pair surged to near the 1.3600 mark, benefiting from selling pressure on the US Dollar.
Currently, the US Dollar Index (DXY), which measures the dollar’s strength against a basket of six major currencies, is trading marginally down at around 97.50. The market sentiment is predominantly bearish for the US Dollar, with the CME FedWatch tool indicating a strong likelihood—94.2%—that the Fed will lower interest rates by 25 basis points during its announcement on Wednesday, bringing rates to a range of 4.00%-4.25%. Speculation regarding the Fed’s dovish stance has intensified due to growing concerns about the labor market.
In contrast, the BoE is expected to maintain its interest rates at 4%, owing to persistent inflationary pressures within the UK economy. This divergence in monetary policy outlooks between the two central banks is influencing currency trading dynamics.
Across major currency pairings, the British Pound demonstrated the strongest performance against the US Dollar, with specific percentage changes reflecting this trend. For instance, the GBP exhibited movements of 0.28% against the USD, while showing minor adjustments against other currencies.
Investors are bracing for significant volatility in the Pound Sterling this week, given that the UK labor market data for the three months ending in July and the Consumer Price Index (CPI) data for August will be released on Tuesday and Wednesday, respectively. Analysts expect that the International Labour Organization (ILO) Unemployment Rate will hold steady at 4.7%. On average, earnings excluding bonuses are projected to grow at 4.8%, which is a slight deceleration from the previous rate of 5%. Meanwhile, including bonuses, wage growth is anticipated to rise to 4.7%, up from 4.6%.
BoE Governor Andrew Bailey has recently highlighted emerging risks to the labor market, stating that the monetary policy trajectory may tilt downward in response to these economic signals.
In the United States, attention is also on the upcoming Retail Sales figures for August, slated for release on Tuesday. The forecast suggests a moderate increase of 0.3%, down from a stronger 0.5% growth in July.
From a technical standpoint, the Pound Sterling is trading firmly above its 20-day Exponential Moving Average (EMA), currently sitting close to 1.3580 against the US Dollar. The near-term trend appears to be sideways, with the exchange rate constrained within an Ascending Triangle pattern, signaling investor indecisiveness. The technical indicators suggest that while the immediate support is positioned near the August 1 low of 1.3140, the July 1 high of approximately 1.3800 will serve as a critical resistance level.
In summary, with key economic indicators set for release in the coming days, the behavior of the Pound Sterling is closely tied to both local economic data and the anticipated actions of the Fed and BoE. Investors will need to remain vigilant as these developments unfold, given their potential impact on currency valuations.
