- The Pound Sterling consolidates around 1.3550 against the US Dollar ahead of the Trump-Zelenskyy meeting at the White House.
- Traders remain confident that the Fed will cut interest rates in September.
- Economists expect the UK core CPI to have grown steadily by 3.7%.
The Pound Sterling (GBP) trades in a tight range around 1.3550 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD pair consolidates as investors await the meeting between United States (US) President Donald Trump, Ukrainian President Volodymyr Zelenskyy, and NATO members at the White House on Monday to discuss the terms laid down by Russian leader Vladimir Putin for ending the war in Ukraine.
On Friday, Trump met with Putin in Alaska to discuss a peace agreement. Trump told after the meeting that Putin had offered to freeze most front lines if Kyiv ceded all of Donetsk, the industrial region that is one of Moscow’s main targets, Reuters reported. Ukrainian President Zelenskyy has rejected the idea of giving up territory.
Market sentiment remains broadly stable ahead of Trump-Zelenskyy meeting, with S&P 500 futures trading 0.13% higher around 6,460. Signs of a truce between Moscow and Kyiv after the Trump-Zelenskyy meeting would be favorable for riskier assets. However, no positive outcome of the meeting is unlikely to dampen risk sentiment as investors have already discounted the consequences of the Russia-Ukraine war.
Daily digest market movers: Investors await UK CPI, Jackson Hole Symposium
- The Pound Sterling trades stable at the start of the week, with investors awaiting the release of the United Kingdom (UK) Consumer Price Index (CPI) data for July on Wednesday. Investors will closely monitor the UK inflation data as it will influence market expectations for the Bank of England’s (BoE) monetary policy outlook. The core CPI – which excludes volatile items such as food, energy, alcohol and tobacco – is estimated to have grown at a steady pace of 3.7% on year.
- Signs of price pressures remaining persistent would allow the BoE to remain committed to its “gradual and careful” monetary expansion guidance, which it reiterated in the policy meeting earlier this month after reducing interest rates by 25 basis points (bps) to 4.25% with a slim majority.
- The major trigger for the US Dollar this week will be the Jackson Hole Symposium, which is scheduled for August 21-23. Investors will pay close attention to Federal Reserve (Fed) Chair Jerome Powell’s comments for fresh cues on the interest rate outlook.
- During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to gain ground near an almost three-week low above 97.60.
- The US Dollar has underperformed since the Nonfarm Payrolls (NFP) report for July showed signs of cooling labor market conditions, which were followed by a sharp increase in market expectations for the Fed’s interest rate cuts in the September policy meeting. According to the CME FedWatch tool, the probability of the Fed cutting interest rates in September is at 82.6%.
- On Friday, San Francisco Fed Bank President Mary Daly said in an interview with Fox Business that there is room for an interest rate cut in September and for two in the year even as the Producer Price Index (PPI) grew at a faster pace in July.
Technical Analysis: Pound Sterling trades sideways around 1.3550
The Pound Sterling trades in a tight range around 1.3550 against the US Dollar on Monday. The near-term trend of the GBP/USD pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades around 1.3460.
The 14-day Relative Strength Index (RSI) strives to break above 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Looking down, the August 11 low of 1.3400 will act as a key support zone. On the upside, the July 1 high near 1.3790 will act as a key barrier.
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.
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