The Pound Sterling has surged to near 1.3150 against the US Dollar as traders increase bets for a 50 basis point interest rate cut by the Federal Reserve. This comes after soft US annual PPI data for August, which has bolstered expectations for the Fed to make aggressive rate cuts. On the other hand, investors believe that the Bank of England is unlikely to cut interest rates in its upcoming meeting next week.
The US Dollar Index has fallen to around 101.00 as the PPI report showed that the annual headline producer inflation was lower than expected at 1.7%. The core PPI, excluding food and energy prices, also grew slower than anticipated at 2.4%. In light of these figures, the probability of a 50 bps interest rate cut by the Fed has sharply increased, according to the CME FedWatch tool.
Meanwhile, the Pound Sterling has outperformed the US Dollar and other major currencies as market sentiment improves due to speculations of aggressive rate cuts by the Fed. Investors are also expecting the Bank of England to follow a more shallow policy-easing cycle, further boosting the Pound Sterling’s strength. A Reuters poll indicates that the BoE is likely to hold rates steady at 5.0%, following a recent cut from 5.25% in August.
The next major event for the Pound Sterling will be the release of the UK Consumer Price Index data for August, expected to remain at 2.7%. This data will provide further insight into the economic conditions in the UK and could impact the Pound Sterling’s performance in the coming days. The recent forecast by the BoE also suggests a stable inflation rate for the next year.
In technical analysis, the Pound Sterling has recovered above the 20-day EMA and is trading near 1.3150 against the US Dollar. The GBP/USD pair has found strong support near the trendline from the December 28, 2023, high, indicating a bullish momentum. The 14-day RSI remains within a favorable range, suggesting a potential bullish move if it breaks above 60.00. Resistance levels are seen at 1.3200 and 1.3500, while support lies at 1.3000 for Pound Sterling bulls.
In summary, the Pound Sterling has strengthened against the US Dollar and other major currencies, driven by expectations of aggressive rate cuts by the Federal Reserve and a cautious approach by the Bank of England. The recent economic data and technical analysis suggest a positive outlook for the Pound Sterling in the near term, with potential resistance levels at 1.3200 and 1.3500. Investors will closely watch the upcoming UK Consumer Price Index data for further insights into the Pound Sterling’s performance.
