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- The GBP/USD pair jumped more than 1% after Powell indicated the possibility of an interest rate cut, reaching a two-year high.
- Powell’s Jackson Hole speech emphasized data-driven interest rate adjustments, with confidence in inflation returning to 2%.
- The US Dollar Index (DXY) fell 0.80% to 100.71, while the 10-year US Treasury yield fell to 3.81%, reflecting market expectations of a rate cut in September.
The GBP/USD pair rose sharply during the North American session after Federal Reserve Federal Reserve Chairman Jerome Powell gave the green light to a rate cut, expressing confidence that inflation is approaching the central bank’s 2% target. The pair traded above 1.3200, around a fresh two-year high, gaining more than 1%.
GBP/USD hits 2-year high above 1.3200
In his speech at Jackson Hole, Jerome Powell said, “It’s time to adjust policy,” adding that the size and timing of the rate cut would depend on the data. He said he was confident that inflation was “on a sustainable path back to 2%,” though he noted that risks to employment had skewed to the upside.
Meanwhile, Fed funds futures traders were pricing in a 33% chance that the Fed would cut interest rates by 50 basis points at its next meeting in September.
In response to Powell’s speech, traders dumped the US dollar, which according to US Dollar Index The US Dollar Index (DXY) fell 0.80% to trade at 100.71. Meanwhile, the yield on the 10-year US Treasury note fell four basis points to 3.81%.
GBP/USD Price Forecast: Technical Outlook
Technically, the GBP/USD uptrend is still intact, but if traders fail to sustain the exchange rate above 1.3200, it could exacerbate the pullback. Buyers remain in control, according to the Relative Strength Index (RSI), which despite being in overbought conditions, due to the strength of the trend, has not reached the 80 level. Therefore, the path of least resistance is leaning to the upside.
The first resistance for GBP/USD will be at 1.3200. A break above this level will expose the pair’s YTD high (so far) at 1.3230, followed by 1.3250 and 1.3300.
In case of correction, first support for GBP/USD We are expected to see the 1.3100 level. Once it is broken, the next support will be the daily high of July 17 at 1.3045, where the previous resistance turned into support, before 1.3000.
Frequently Asked Questions About Sterling
The British pound (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 in the world’s foreign exchange (FX) market, accounting for 12% of all transactions, with an average of $630 billion per day, according to 2022 data. The main trading pairs are GBP/USD, also known as the “cable”, which accounts for 11% of the FX market, GBP/JPY, or “the dragon” as traders know it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most important factor that affects the value of the pound is the monetary policy set by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary goal of “price stability” – a stable inflation rate of around 2%. Its primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it harder for people and businesses to access credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider cutting interest rates to reduce credit so that businesses will borrow more to invest in growth-generating projects.
Data released measures the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and service PMIs, and employment can all influence the direction of the pound. A strong economy is good for the pound. Not only does it attract more foreign investment, it may encourage the Bank of England to raise interest rates, which would directly boost the pound. Otherwise, if economic data is weak, the pound is likely to fall.
Another important piece of data relating to the pound is the trade balance. This measure measures the difference between what a country earns from its exports and what it spends on imports over a given period of time. If a country produces highly demanded exports, its currency will benefit purely from the additional demand generated by foreign buyers seeking to purchase these goods. Thus, a positive net trade balance strengthens the currency and vice versa for a negative balance.
