Pound Sterling slides again as Fed speakers line up behind another hike

GBP/USD slides to its lowest in nearly three months as Fed speakers back another hike.
Two switches would turn the BoE's 6-3 hold into a 5-4 vote to hike.
UK second-quarter GDP on September 30 is the only British release before US payrolls.

Bank of England (BoE) Deputy Governors Lombardelli and Breeden said on Thursday that they are moving closer to voting for a rate hike, and the Pound fell for a fourth straight session regardless. GBP/USD is trading just above 1.3200, its lowest in nearly three months. A BoE that talks about hiking should lift Sterling, but the Fed decides first, and its officials said much the same thing on the same day.

Análisis de TMGM: noticias de mercados financieros, calendario económico e información del mercado

New York Fed President Williams called one more increase before the end of the year a reasonable expectation, while Philadelphia Fed President Paulson argued that some modest further tightening may be warranted. US jobless claims came in at 197K against a 201K forecast, which gives neither of them a reason to back off. The Fed decides on October 28 and the BoE on November 5, so a UK hike would arrive eight days after a US one that markets already rate as likely.

Two changed minds would make it five votes to four

The BoE held the UK's Bank Rate at 3.75% on September 17 by six votes to three, with Chief Economist Pill and external members Greene and Mann voting for 4%. Deputy Governor Lombardelli said in a speech in Warsaw that the longer energy prices stay high, the greater the risk that wage bargaining and price-setting start to adjust. Deputy Governor Breeden made the same case in London, and both voted to hold in September.

External member Dhingra sounded less urgent, arguing that Britain isn't seeing the broad price rises of 2022 and that its jobs market is weaker now. Markets still price about a 75% chance of a quarter-point BoE hike on November 5 and a second by February. A November hike would take the Bank Rate to 4%, which is the top of the Fed's range now and could be the bottom of it after October 28.

The BoE's case for a hike rests on energy, and energy can change quickly. Reuters reported on Thursday that negotiators for Washington and Tehran are weighing a phased agreement under which Iran would reopen the Strait of Hormuz, though Brent was still trading above $106 a barrel. Paulson's case rests on underlying inflation, the measure that strips out food and energy, which she said has made little progress this year, and a ceasefire wouldn't change that.

The only UK number is a third look at April to June

Britain's one data release before October 2 is the final second-quarter Gross Domestic Product (GDP) estimate on Wednesday, September 30 at 06:00 GMT, forecast at 0.4% QoQ and 1.2% YoY, both unchanged from the previous estimate. The speeches carry more weight for Sterling. Deputy Governor Ramsden speaks on Monday at 10:00 GMT and external member Taylor on Tuesday at 15:30 GMT, and both voted to hold on September 17, so either could become a third holder leaning toward a hike.

The US calendar is fuller. Durable goods orders and the University of Michigan (UoM) sentiment survey land on Friday, then the Personal Consumption Expenditures (PCE) price index on September 30 and Nonfarm Payrolls (NFP) on October 2, where August's reading was 162K. External member Mann, a hike voter in July and September, speaks on October 1. Whatever payrolls show, the BoE's next chance to respond comes five weeks later.

Levels and bias

Resistance: Thursday's bounce stalled just above 1.3250. Above that, 1.3300 is the level GBP/USD went through on Wednesday, the largest of the four down days, and it now caps the pair.

Support: 1.3200 is the first floor, with Thursday's low just above it. Below that, the late-June low just under 1.3150 is the last stop before 1.3100.

Bias: The lean is short below 1.3250, with 1.3150 as the first objective and 1.3100 after it. The daily Stochastic Relative Strength Index (Stoch RSI) reads about 11 and is still pointing lower. A daily close back above 1.3300 ends the short.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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