The Pound Sterling (GBP) started the new week on a weaker note against the US Dollar (USD) due to sustained USD buying. Expectations for more aggressive policy easing by the Bank of England (BoE) further undermine the GBP. With the fundamental backdrop supporting the prospects for an extension of the downfall, the GBP/USD pair struggles to capitalize on gains and remains close to a one-month low.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, is near its highest level since mid-August as traders have ruled out further interest-rate cuts by the Federal Reserve (Fed) in November. This, along with ongoing geopolitical risks in the Middle East, benefits the safe-haven dollar and puts pressure on the GBP/USD pair. Expectations of rate cuts by the BoE have increased, with a 90% chance of a rate cut in November. BoE Governor Andrew Bailey’s recent comments suggest a possibility of a more aggressive rate-cutting cycle.
Despite economic releases from the UK and US, the market reaction has been short-lived, indicating bearish sentiment for the GBP/USD pair. UK economic data showed a modest recovery in August, while the US Producer Price Index for final demand remained unchanged in September. The favourable inflation outlook in the US may support expectations for additional interest rate cuts by the Fed in November, which could offer some support to the GBP/USD pair.
The Pound Sterling, the oldest currency in the world, is the official currency of the United Kingdom and accounts for 12% of all FX transactions globally. The key trading pairs for GBP include GBP/USD, GBP/JPY, and EUR/GBP. The value of the Pound Sterling is influenced by monetary policy decisions by the Bank of England, which aims for price stability through inflation targeting and interest rate adjustments. Economic data releases and the Trade Balance also impact the value of the GBP, with a strong economy boosting Sterling and a positive Trade Balance strengthening the currency.
Overall, the GBP/USD pair faces downward pressure due to sustained USD buying, expectations of aggressive BoE policy easing, and ongoing geopolitical risks. With the fundamental backdrop supporting a continuation of the GBP downfall, traders are cautious about the outlook for the pair in the near term. Economic data releases and monetary policy decisions by central banks will continue to drive movements in the GBP/USD pair, making it important for traders to stay informed and adapt their strategies accordingly.
