Pound Sterling drops from 1.2700 against USD ahead of US core PCE inflation
- The Pound Sterling declines against the US Dollar as investors shift focus to the US core PCE inflation data for May.
- UKÂ’s high wage inflation refrains BoE policymakers from committing to interest rate cuts.
- Uncertainty over the UKÂ’s parliamentary elections will keep the Pound Sterling on tenterhooks.
The Pound Sterling (GBP) weakens 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 as 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 ReserveÂ’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 doesnÂ’t see any this year.
Daily digest market movers: Pound Sterling weakens against Australian Dollar and USD
- 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 and the USD. 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 UKÂ’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.Â
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.
| Â | USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| USD | Â | 0.21% | 0.12% | 0.13% | 0.08% | -0.42% | 0.15% | 0.16% |
| EUR | -0.21% | Â | -0.10% | -0.12% | -0.17% | -0.62% | -0.05% | -0.07% |
| GBP | -0.12% | 0.10% | Â | 0.00% | -0.05% | -0.52% | 0.07% | 0.05% |
| JPY | -0.13% | 0.12% | 0.00% | Â | -0.04% | -0.54% | 0.06% | 0.05% |
| CAD | -0.08% | 0.17% | 0.05% | 0.04% | Â | -0.53% | 0.09% | 0.08% |
| AUD | 0.42% | 0.62% | 0.52% | 0.54% | 0.53% | Â | 0.57% | 0.57% |
| NZD | -0.15% | 0.05% | -0.07% | -0.06% | -0.09% | -0.57% | Â | 0.00% |
| CHF | -0.16% | 0.07% | -0.05% | -0.05% | -0.08% | -0.57% | -0.00% | Â |
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 drops from 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.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the FedÂ’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the FedÂ’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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