The Pound Sterling (GBP) showed weakness against major currencies during Monday’s London session, reflecting investor caution ahead of the Bank of England’s (BoE) upcoming monetary policy meeting on Thursday. The BoE is anticipated to reduce its interest rate by 25 basis points (bps) to 5%, marking the first rate cut in over four years. This move would reverse the restrictive policy stance adopted by global central banks during the pandemic.
Market analysts predict that the BoE’s decision to cut rates may be complicated by persistent inflation in the service sector. Although annual headline inflation has aligned with the target of 2%, elevated service sector inflation could pose risks to sustained economic stability.
On a positive note, UK Prime Minister Keir Starmer’s recent parliamentary majority has bolstered economic prospects. Enhanced performance in manufacturing and services could lead to increased input prices, potentially reigniting price pressures.
Pound Hits Two-Week Low Against USD
In Monday’s European trading hours, the Pound Sterling fell to a fresh two-week low of approximately 1.2810 against the US Dollar (USD). The GBP/USD pair’s decline is attributed to the USD’s strength amid market uncertainty ahead of the Federal Reserve’s (Fed) policy announcement on Wednesday. The US Dollar Index (DXY), which measures the Greenback against six major currencies, increased to 104.50.
The Fed is expected to maintain interest rates in the range of 5.25%-5.50% for the eighth consecutive meeting. Market participants will scrutinize the Fed’s monetary policy statement and Fed Chair Jerome Powell’s press conference for indications of potential rate cuts later in the year. Financial markets are speculating about two rate cuts, with September potentially marking the start of a policy-easing cycle.
Despite market expectations, Bank of America (BofA) economists have argued that consumer demand and inflation may not decline swiftly enough to justify the anticipated rate cuts. BofA maintains its forecast for a December rate cut, though upcoming economic data could prompt an earlier adjustment, Reuters reported.
In addition to Fed policy, investors will be monitoring US economic data releases, including JOLTS Job Openings for June, ADP Employment Change, ISM Manufacturing PMI, and July Nonfarm Payrolls.
Technical Analysis: Pound Sterling Slips Below Key Support
On a technical front, the Pound Sterling has declined towards the lower boundary of its Rising Channel chart pattern on a daily timeframe. The GBP/USD pair fell below the significant support level of 1.2900 and the 20-day Exponential Moving Average (EMA) near 1.2860, indicating potential short-term uncertainty.
The 14-day Relative Strength Index (RSI) has decreased toward 40.00, suggesting possible stabilization of momentum. Key support for the Pound Sterling is seen around the 1.2800 level, while a two-year high near 1.3140 remains a significant resistance zone for the pair.
Related Topics:
