Quick Look:
- GBP/USD closed down by 0.5%, marking the second consecutive weekly decline.
- The Bank of England is anticipated to cut rates by 25 basis points, which will affect the Pound’s performance.
- There are mixed signals, with steady core PCE inflation and a dip in consumer sentiment.
- Optimism persists with expectations of a Fed rate cut in September.
- The Pound showed relative weakness, particularly against the Japanese Yen.
The GBP/USD pair faced challenges making any significant progress on Friday, reflecting a broader trend of difficulties for the Pound Sterling ahead of the Bank of England’s (BoE) impending rate decision. The pair experienced a modest increase of 0.13% on the day, but this movement was insufficient to offset the negative sentiment surrounding the BoE’s expected policy shift. As the trading week concluded, GBP/USD closed by 0.5%, marking the second consecutive week of decline and pulling back from the 12-month high it reached just above 1.3000 last week.
BoE Rate Cut Looms
Market participants eagerly await the BoE’s first rate cut since March 2020, which they will announce on Thursday. They anticipate a decrease of 25 basis points, lowering the UK’s primary benchmark rate from 5.25% to 5.0%. The market has already priced in this potential cut, which has contributed to the Pound’s recent lacklustre performance. At the same time, observers focus on the Federal Reserve’s (Fed) upcoming rate decision. The Fed is expected to keep its current rates in the July meeting while speculation grows about starting a rate cut cycle in September.
Mixed Signals from US Economic Data
Recent economic data from the United States presents a mixed picture, further complicating the outlook for GBP/USD. Core US Personal Consumption Expenditures (PCE) inflation remained steady at 2.6% year-over-year in June, defying expectations of a slight decrease. Additionally, month-over-month PCE inflation rose to 0.2%, exceeding the forecasted 0.1%. The University of Michigan’s Consumer Sentiment Index also dipped to an eight-month low of 66.4 in July, slightly above the anticipated 66.0 but lower than the previous reading of 68.4. Despite these signs of potential inflationary pressures, the market has largely shrugged off these concerns, maintaining a risk-on sentiment and looking forward to a rate cut in September.
Market Sentiment and Rate Expectations
The market has responded optimistically to these developments. The CME’s FedWatch Tool indicates a 25-basis-point rate cut. Investors expect the Federal Open Market Committee (FOMC) to implement this cut on September 18. They see a 100% chance of no rate change by the end of July. Furthermore, there is a 12% probability of a 50-basis-point cut in September. This reflects hopes for more substantial monetary policy easing among some market participants.
Weekly Performance of the British Pound
This week, the British Pound’s performance against major currencies underscores its relative weakness. The GBP was most potent against the Australian Dollar, reflecting a 1.80% increase. However, it fell against the Japanese Yen, which saw the most substantial gains, appreciating by 2.75%. The Pound also struggled against other currencies, including the US Dollar and Euro, indicating broad-based pressure ahead of the BoE’s rate decision.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | 0.36% | -2.29% | 0.87% | 2.11% | 2.20% | -0.44% | |
| EUR | -0.24% | 0.10% | -2.55% | 0.58% | 1.90% | 1.87% | -0.74% | |
| GBP | -0.36% | -0.10% | -2.75% | 0.46% | 1.80% | 1.76% | -0.88% | |
| JPY | 2.29% | 2.55% | 2.75% | 3.27% | 4.57% | 4.52% | 1.80% | |
| CAD | -0.87% | -0.58% | -0.46% | -3.27% | 1.32% | 1.30% | -1.32% | |
| AUD | -2.11% | -1.90% | -1.80% | -4.57% | -1.32% | -0.03% | -2.63% | |
| NZD | -2.20% | -1.87% | -1.76% | -4.52% | -1.30% | 0.03% | -2.56% | |
| CHF | 0.44% | 0.74% | 0.88% | -1.80% | 1.32% | 2.63% | 2.56% |
Technical Outlook for GBP/USD
From a technical perspective, GBP/USD has retreated below the 1.2900 level after pulling back from last week’s high near 1.3045. The pair has declined by approximately 1.5% from peak to trough, yet buyers’ near-term momentum remains slightly favourable. This is primarily because the price is above the 200-day Exponential Moving Average (EMA) at 1.2636. However, sellers will likely intensify pressure, aiming to push the pair below the recent swing low near 1.2600. Conversely, renewed buying interest could emerge if the pair declines enough to touch a rising trendline drawn from the lows of last October near 1.2037.
GBP/USD Falls 1.5%, Holds Above 200-Day EMA
The GBP/USD pair faces a critical week ahead, with significant events on both sides of the Atlantic poised to shape its trajectory. The BoE’s expected rate cut and the Fed’s forthcoming decision will be pivotal in determining the pair’s direction. While technical indicators show some support for the Pound, market sentiment and economic data will play crucial roles. As traders brace for potential volatility, the interplay between central bank policies and economic indicators will remain at the forefront of their strategies.
