Key Takeaways
- The Pound Sterling (GBP) is trading lower against major currency peers amidst increased dovish bets on the Bank of England (BoE).
- This weakening is partly driven by UK retailers cutting prices in October, suggesting potential easing of monetary policy.
- Meanwhile, global market sentiment has improved due to growing expectations of a US-China trade deal.
- The US Dollar (USD) is also facing selling pressure as investors anticipate interest rate cuts from the Federal Reserve.
Market Recap: Pound Sterling Declines Amid Dovish BoE Bets and Mixed Global Cues
The Pound Sterling (GBP) experienced a decline against its major currency counterparts on Tuesday. This weakening trend was primarily influenced by increased expectations that the Bank of England (BoE) might adopt a more dovish monetary policy stance. These heightened dovish bets overshadowed positive shifts in global market sentiment.
💡 The sentiment for a less restrictive monetary policy from the BoE was amplified as UK retailers reported price reductions in October. Data from the British Retail Consortium (BRC) indicated that shop prices fell by 0.3% month-on-month, marking the first decrease since March. Such indications of easing inflation could continue to exert downward pressure on the Pound Sterling in the short term.
Global Market Sentiment Boosted by US-China Trade Deal Hopes
Concurrently, investor risk appetite saw an uplift, primarily driven by optimistic outlooks regarding a potential trade agreement between the United States and China. These hopes were further bolstered by statements from US President Donald Trump.
On Monday, President Trump expressed confidence in securing a deal following his anticipated meeting with Chinese leader Xi Jinping later in the week. Speaking to reporters, Trump conveyed a strong belief that a resolution would be reached.
Further contributing to the optimism were comments from US Treasury Secretary Scott Bessent. Bessent suggested that Washington might not proceed with the planned additional tariffs on Beijing. His remarks also indicated confidence that China would ease restrictions on rare earth exports, a move that could help de-escalate trade frictions between the two economic giants.
US Dollar Faces Pressure Amid Fed Rate Cut Expectations
The British Pound gave up its earlier gains against the US Dollar (USD) on Tuesday, retreating towards the 1.3300 level during European trading. The GBP/USD pair’s decline was linked to easing consumer inflation expectations in the UK. Simultaneously, the US Dollar experienced selling pressure due to firming expectations of an interest rate cut by the Federal Reserve (Fed) at its upcoming monetary policy announcement.
📍 At the time of reporting, the US Dollar Index (DXY), which measures the Greenback’s strength against a basket of major currencies, was down approximately 0.2%, trading near weekly lows around 98.60.
📊 Several factors are contributing to the intensified dovish expectations surrounding the Fed. These include moderate growth in US inflation, signs of weakening job demand, and the ongoing federal government shutdown. The US Consumer Price Index (CPI) report for September, released on Friday, indicated a modest rise in price pressures on a month-over-month basis.
⚡ Recent commentary from various Federal Open Market Committee (FOMC) members, including Chairman Jerome Powell, has highlighted concerns about deteriorating labor market conditions in the United States. Powell noted that downside risks to the job market have increased, providing justification for previous rate cuts.
The continuing US government shutdown, now in its fourth week, has also raised concerns about the broader economic outlook.
📌 Beyond the immediate interest rate decision, investors are closely watching for any signals regarding the Fed’s monetary policy trajectory for the remainder of the year. The Fed’s dot plot from the September policy meeting suggested that policymakers anticipate the Federal Funds rate to reach 3.6% by year-end, implying a potential further rate cut in December.
Technical Outlook: GBP/USD Hovers Near Key Support Level
The Pound Sterling is encountering resistance in maintaining its position above the key support level around 1.3300 against the US Dollar. The overall trend for the GBP/USD pair appears uncertain as it consolidates near the 200-day Exponential Moving Average (EMA), which is also situated around 1.3300.
The 14-day Relative Strength Index (RSI) is trading near the 40.00 mark, suggesting a neutral momentum. A sustained move below this level could indicate an emerging bearish sentiment.
Looking ahead, the low recorded on August 1, at 1.3140, is expected to serve as a significant support zone. Conversely, the psychological resistance level of 1.3500 presents a key barrier on the upside.
Economic Indicator
Consumer Price Index (MoM)
The Consumer Price Index (CPI) measures inflationary or deflationary tendencies by tracking the prices of a basket of goods and services over time. Compiled monthly by the U.S. Bureau of Labor Statistics, the month-over-month (MoM) figure compares prices from the current month to the preceding one. CPI is a critical indicator for assessing inflation and shifts in consumer spending patterns. Generally, a higher-than-expected CPI reading is considered bullish for the US Dollar (USD), while a lower reading is seen as bearish.
Final Thoughts
The Pound Sterling faces headwinds from rising dovish expectations for the Bank of England, compounded by recent retail price trends. Concurrently, the US Dollar is under pressure due to anticipated Federal Reserve rate cuts, despite a more positive global backdrop driven by US-China trade deal optimism. Technical levels for GBP/USD suggest a period of consolidation near significant moving averages.