British Pound extends losses as US Dollar holds ground on Fed rate hike bets
- GBP/USD depreciates as the US Dollar remains strong, with July's PCE inflation accelerating to 0.2%, beating market expectations.
- Oil prices fell as Iran and Oman reached a Strait of Hormuz agreement, easing immediate inflation worries.
- Pound sentiment weakened following disappointing CBI business data and a shift in policy expectations, according to Scotiabank.
GBP/USD remains subdued for the second successive day, trading around 1.3590 during the European hours on Thursday. The pair depreciates as the US Dollar (USD) remains stronger following the robust economic data released on Wednesday.
July’s PCE price index accelerated to 0.2% month-on-month, edging past the 0.1% consensus, while the annual rate remained at 3.7%, against the expected 3.6%. This surprise uptick has reinforced market bets that the Federal Reserve could deliver one final rate hike before year-end, leaving investors eagerly awaiting policy cues from Fed Chair Kevin Warsh’s speech at the upcoming Jackson Hole symposium.
Crude oil prices continued to slide following diplomatic headway in the Middle East, where Iran and Oman agreed on territorial waters and revenue-sharing along the Strait of Hormuz, easing immediate inflation anxieties.
Meanwhile, fiscal scrutiny intensified over the US Treasury’s plan to double bond buybacks, a move sharply criticized by billionaire investor Stanley Druckenmiller as detrimental to market credibility and a missed opportunity for meaningful debt reform.
Pound support erodes as softer BoE expectations weigh on yield spreads
Strategists at Scotiabank observe that recent fundamental news flow for the Pound has been relatively light, with attention focused on "disappointing second-tier CBI business sentiment data" and a shift in the policy outlook. They note that "BoE rate expectations have softened somewhat, eroding fundamental support via yield spreads," leaving the currency more vulnerable in the near term as yield-based support diminishes.
Technical Analysis: GBP/USD weakens despite ongoing bullish bias
In the daily chart, GBP/USD trades at 1.3590, maintaining a mildly bullish bias as spot holds above the 50-day Exponential Moving Average (EMA), while probing immediate resistance at the nine-day EMA. The 14-day Relative Strength Index (RSI) at about 60 keeps a constructive tone without yet signaling overbought conditions, suggesting that upside pressure persists but may need a clean break of the short-term EMA cap to extend the advance.
On the downside, initial support emerges at the 50-day EMA near 1.3473, where a sustained hold would keep the broader recovery structure intact. On the topside, the nine-day EMA at 1.3593 is the first hurdle; a daily close above this level would open the way for a continuation of the latest bullish leg, whereas repeated failures there would hint at consolidation or a minor pullback toward the underlying moving-average base.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.