Pound Sterling Outperforms US Dollar As Fed Seems To Cut Rates Next Week
- The Pound Sterling aims to extend its upside further due to multiple tailwinds.
- UK S&P Global Composite PMI is revised higher to 51.2 in November.
- Investors expect both the Fed and the BoE to cut interest rates this month.
The Pound Sterling (GBP) trades 0.1% higher to near 1.3360 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair gains as the US Dollar retreats to near its five-week low, with traders remaining confident that the Federal Reserve (Fed) will cut interest rates in its monetary policy meeting next week.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades cautiously near its five-week low around 98.75.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87%.
Firm Fed dovish expectations are backed by weakening US job market conditions. The US ADP reported on Wednesday that the private sector shed 32K jobs in November, while it was expected to add 5K fresh workers.
The minutes of the Federal Open Market Committee (FOMC) meeting in October also showed that policymakers acknowledged downside labor market risks and the need to loosen monetary conditions further. However, several members argued against reducing interest rates in December.
In Friday’s session, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for September, which will be released later in the day. However, its impact might be insignificant on expectations towards the Fed's next step, as it is delayed data.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.42% | -0.72% | -0.62% | -0.22% | -1.19% | -0.64% | -0.02% | |
| EUR | 0.42% | -0.30% | -0.18% | 0.23% | -0.77% | -0.22% | 0.40% | |
| GBP | 0.72% | 0.30% | 0.35% | 0.50% | -0.48% | 0.08% | 0.70% | |
| JPY | 0.62% | 0.18% | -0.35% | 0.40% | -0.59% | -0.03% | 0.59% | |
| CAD | 0.22% | -0.23% | -0.50% | -0.40% | -1.02% | -0.42% | 0.19% | |
| AUD | 1.19% | 0.77% | 0.48% | 0.59% | 1.02% | 0.56% | 1.18% | |
| NZD | 0.64% | 0.22% | -0.08% | 0.03% | 0.42% | -0.56% | 0.62% | |
| CHF | 0.02% | -0.40% | -0.70% | -0.59% | -0.19% | -1.18% | -0.62% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Pound Sterling capitalizes on UK budget, upwardly revised PMI
- The Pound Sterling strives to extend its recent rally against its major currency peers on Friday. The British currency has been outperforming its peers for over a week, prompted by the United Kingdom (UK) budget announced on November 26, and an upward revision in the S&P Global Purchasing Managers’ Index (PMI) data for November.
- The budget announced by Chancellor of the Exchequer Rachel Reeves last week unveiled the Labour Party’s plans to raise 26 billion pounds in taxes to fill the fiscal hole without having a material burden on households.
- Financial market participants were worried before the budget announcement that the government might go against its self-imposed fiscal rules to address welfare spending measures, a scenario that could have promoted UK gilt yields. However, the government passed the bond market test and also presented large-scale investment plans.
- On Wednesday, the S&P Global reported that the Composite PMI rose to 51.2 from the preliminary reading of 50.5, which diminished fears of muted business activity.
- Going forward, the major trigger for the Pound Sterling will be market expectations for the Bank of England’s (BoE) monetary policy outlook. The BoE is expected to cut interest rates in the next meeting on December 18 to support weakening job market conditions.
Technical Analysis: GBP/USD sees more upside above 1.3400
(Click on image to enlarge)
The Pound Sterling trades firmly near its monthly high of 1.3385 against the US Dollar, posted on Thursday. The pair holds above a rising 20-day Exponential Moving Average (EMA) at 1.3227, maintaining a positive near-term bias. The 20-day EMA has sloped higher in recent sessions, and dips remain shallow.
The 14-day Relative Strength Index (RSI) at 62.77 reflects bullish momentum.
Momentum remains supportive, while price stays above the rising 20-day EMA. A daily close above the 50% Fibonacci retracement at 1.3402 would reinforce the bullish tone and open room for continuation towards the October 17 high of 1.3471. Conversely, failure to breach that barrier would keep the pair consolidating, with pullbacks leaning toward the 38.2% Fibonacci area and trend support.
More By This Author:
Pound Sterling Sees More Upside On UK Budget-Relief Rally, Upwardly Revised PMIUSD/CAD Trades Flat Near 1.3950 Ahead Of Canada’s Employment Data
Pound Sterling Trades Broadly Upbeat Against US Dollar Amid Firm Fed Dovish Bets
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