Pound Sterling refreshes two-week high against USD as Trump endorses immediate rate cuts
- The Pound Sterling posts a fresh two-week high above 1.2400 against the US Dollar after US President Trump supported immediate interest rate cuts from the Fed.
- The Fed is widely anticipated to keep interest rates steady on Wednesday.
- Investors await the preliminary UK/US PMI data for January.
The Pound Sterling (GBP) jumps to near 1.2400 against the US Dollar (USD) on Friday. The GBP/USD gains as the US Dollar is onset to end the week with the highest losses in almost two months. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near 107.60, the lowest level in over a month after United States (US) President Donald Trump signaled the need for immediate interest rate cuts by the Federal Reserve (Fed) in his commentary at the World Economic Forum (WEF) on Thursday.
"With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," Trump said. His comments have come just a few days before the announcement of the Fed’s first monetary policy meeting on January 29, in which it is certain to announce a pause in the policy-easing cycle and keep interest rates unchanged in the range of 4.25%-4.50%, according to the CME FedWatch tool.
Trump’s call for reducing interest rates immediately is unlikely to impact the Fed, an independent body dedicated to achieving its agenda of maintaining full employment with price stability.
In Friday’s session, the US Dollar will be influenced by the preliminary S&P Global PMI data for January, which will be published at 14:45GMT. The PMI data is expected to show that overall US private business activity remained almost steady in the month.
Daily digest market movers: Pound Sterling outperforms US Dollar
- The Pound Sterling performs broadly sideways against its major peers, except the US Dollar, ahead of the preliminary United Kingdom (UK) S&P Global/CIPS Purchasing Managers Index (PMI) data for January, which will be published at 09:30 GMT. Investors will pay close attention to the private business activity data as they are worried about the UK economic outlook due to tight fiscal rules set by Chancellor of the Exchequer Rachel Reeves in the Autumn budget.
- The agency is expected to report that the Composite PMI dropped to 50.0 from 50.4 in December, suggesting that overall private business activity expanded but at a slower pace. The Composite PMI is set to rise moderately as manufacturing sector activity continues to contract and the demand in the service sector expands at a slower pace.
- Soft PMI numbers would boost market expectations that the Bank of England (BoE) will reduce interest rates by 25 basis points (bps) to 4.5% in February’s monetary policy meeting. However, strong numbers are unlikely to diminish these expectations, as dovish bets have been fuelled by soft inflation and employment data, and weak household spending.
- On the fiscal front, Rachel Reeves said in an interview with the Wall Street Journal (WSJ) at the sidelines of the World Economic Forum in Davos that she is prepared to announce new measures in A budget update on March 26 to ensure meet fiscal rules. Reeves announced in October that the government will rely on foreign financing only for investment.
Technical Analysis: Pound Sterling rises to near 1.2400
The Pound Sterling climbs to near 1.2400 against the US Dollar on Friday. The GBP/USD pair gains after breaking above the 20-day Exponential Moving Average (EMA), which trades around 1.2363.
The 14-day Relative Strength Index (RSI) rebounds to near 50.00 from the 20.00-40.00 range, suggesting that the bearish momentum has ended, at least for now.
Looking down, the January 13 low of 1.2100 and the October 2023 low of 1.2050 will act as key support zones. On the upside, the 50-day EMA near 1.2515 will act as key resistance.
Pound Sterling FAQs
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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