Sterling gains bullish boost after UK data, Fed to follow

VaselineSeptember 18, 2024

0 3 minutes read

Sterling gains bullish boost after UK data, Fed to follow

GBP/USD is trading in positive territory above 1.3200 on Wednesday.
The annual core CPI rose at a stronger-than-expected pace in August.
The Fed is expected to cut the policy rate after the September meeting.

GBP/USD gained traction in the European session on Wednesday and climbed above 1.3200 after ending Tuesday in negative territory. The pair’s technical outlook points to a build-up of bullish momentum as market focus shifts to the Federal Reserve’s monetary policy announcements.

Pound Sterling PRICE Today

The table below shows the percentage change in the British Pound (GBP) against the main listed currencies today. Sterling was the strongest against the US dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.18%	-0.42%	-0.48%	-0.08%	-0.36%	-0.60%	-0.49%
EURO	0.18%		-0.25%	-0.30%	0.10%	-0.17%	-0.43%	-0.31%
GBP	0.42%	0.25%		-0.04%	0.34%	0.08%	-0.19%	-0.04%
JPY	0.48%	0.30%	0.04%		0.39%	0.12%	-0.11%	0.02%
CAD	0.08%	-0.10%	-0.34%	-0.39%		-0.28%	-0.53%	-0.38%
AUD	0.36%	0.17%	-0.08%	-0.12%	0.28%		-0.23%	-0.11%
NZD	0.60%	0.43%	0.19%	0.11%	0.53%	0.23%		0.12%
CHF	0.49%	0.31%	0.04%	-0.02%	0.38%	0.11%	-0.12%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose British Pound in the left column and move along the horizontal line to the US Dollar, the percentage change shown in the box will be GBP (basis)/USD (quote).

The UK’s Office for National Statistics reported on Wednesday morning that annual inflation, as measured by the change in the consumer price index (CPI), held steady at 2.2% in August, as expected. Core CPI, which excludes volatile food and energy prices, rose 3.6 percent annually, up from a 3.3 percent increase in July and above analysts’ estimate of 3.5 percent. With the immediate reaction, the pound gathered strength against its rivals.

The Fed is set to cut the policy rate after the September meeting. However, markets are divided by the size of the rate cut. According to the CME FedWatch tool, there is a 61% chance of a 50 basis point (bps) rate cut and a 39% chance of a 25bps cut.

If the Fed opts for a 50bps cut, the immediate reaction could see the USD come under strong selling pressure and open the door for another higher level in GBP/USD. On the other hand, the USD could hold if the Fed opts for a 25 bps rate cut and triggers a downward correction in the pair.

Investors will also look at the details of the revised summary of economic projections (SEP), the so-called dot-plot. If the dot-plot shows that another 75 bps rate cut is projected by the end of the year, the USD may not benefit from a 25 bps rate cut.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 60 after dropping to 50 on Tuesday, reflecting a bullish tilt to the near-term outlook. GBP/USD could face intermediate resistance at 1.3260 (last uptrend endpoint) before 1.3300 (static level) and 1.3340 (static level).

On the downside, 1.3200 (static level) lines up as first support ahead of 1.3150-1.3140 (100-period SMA, Fibonacci 38.2% retracement of last uptrend) and 1.3100 (static level).

Fed FAQ

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability and to promote full employment. Its main tool for achieving these objectives is the adjustment of interest rates. When prices rise too quickly and inflation is above the Fed’s 2 percent target, it raises interest rates, raising 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 can lower interest rates to encourage borrowing, which hurts 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. Twelve Fed officials attend the FOMC—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 rotating one-year terms. .

In extreme situations, the Federal Reserve can resort to a policy called 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 Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy higher quality 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 of bonds it holds at maturity to buy new bonds. It is usually positive for the value of the US dollar.

VaselineSeptember 18, 2024

0 3 minutes read

Pound Sterling PRICE Today

GBP/USD Technical Analysis

Fed FAQ

Vaseline

Related Articles

Zoom Goes Vertical: Get Ready to Buy the Dip

Tesla’s delivery numbers are due. Wall Street took all the fun out of it.

Eric Adams calls on Elon Musk’s favorite lawyer, Alex Spiro

Consumer insurance agent natural disasters cost increase