The Pound Sterling (GBP) bounces sharply to near 1.2935 against the US Dollar (USD) in Thursday’s London session after refreshing an almost 11-week low near 1.2830 on Wednesday. The GBP/USD pair rebounds as the US Dollar (USD) corrects slightly after a sharp rally. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, drops to near 104.90 after posting a fresh four-month high around 105.40.
The US Dollar had a strong run-up on Wednesday due to a landslide victory of Republican candidate Donald Trump over his Democratic rival Kamala Harris. The appeal of the Greenback improved sharply as Trump has vowed to raise tariffs on imports by 10% universally and lower corporate taxes if he wins the presidential elections, measures that traders interpreted as a positive for the US Dollar.
Higher tariffs could push demand for domestic output, while corporate lower taxes would leave more money in the hands of corporations, which will boost investments. A scenario that will result in higher investments, spending and labor demand will escalate price pressures and allow the Federal Reserve (Fed) to take a hawkish stance on interest rates.
To get meaningful cues about the impact of Trump’s victory on the United States (US) interest rate path and the inflation outlook, investors will focus on the Fed’s policy meeting at 19:00 GMT. Officials are widely anticipated to cut interest rates by 25 basis points (bps) to the 4.50%-4.75% range.
The Pound Sterling rebounds sharply after posting a fresh 11-week low near 1.2830 against the US Dollar. The GBP/USD pair recovered after discovering buying interest near the 200-day Exponential Moving Average (EMA) around 1.2860.
However, the near-term trend remains bearish as the 20-day and 50-day Exponential Moving Average (EMAs)around 1.2990 and 1.3030, respectively, are declining.
The breakdown from the lower boundary of a rising channel on the daily time frame has also added to evidence supporting more downside.
The 14-day Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would resume if the RSI (14) fails to hold this level.
Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the psychological figure of 1.3000.
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.
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