GBPUSD is moving in Descending channel and market has reached lower low area of the channel
Pound Sterling Struggles: What’s Behind the Decline?
The Pound Sterling has been on a rocky road recently, especially against the US Dollar, hitting close to 1.2880. This dip comes amid dismal market sentiment ahead of the advanced US Q2 GDP data. While the UK’s economic outlook has improved slightly due to a firm preliminary S&P Global/CIPS PMI for July, the Bank of England (BoE) remains hesitant about making any significant moves, particularly when it comes to rate cuts in August. Let’s dive into the details of what’s been going on with the Pound Sterling and what it means for the future.
Economic Data and Market Sentiment
UK Economic Outlook: A Mixed Bag
The UK’s economic data has been somewhat of a mixed bag recently. On one hand, the preliminary UK S&P Global/CIPS report for July showed a positive start to the third quarter. The Composite PMI came in higher at 52.7, slightly above estimates and the previous release. Both the Manufacturing PMI and Services PMI showed growth, with figures of 51.8 and 52.4 respectively, indicating an expansion in both sectors. This data suggests that the UK economy is holding up better than expected.
However, despite this upbeat data, the Pound Sterling hasn’t been performing well. The British currency has struggled against its major peers, with the exception of the Australian Dollar and the New Zealand Dollar. This poor performance is largely due to market speculation surrounding the Bank of England’s next move.
BoE’s Dilemma: To Cut or Not to Cut?
The big question on everyone’s mind is whether the Bank of England will cut interest rates in August. A recent Reuters poll showed that more than 80% of economists expect the BoE to reduce its key borrowing rates by 25 basis points to 5%. This is a slight drop from June’s poll, where 97% of respondents were in favor of a rate cut.
However, market participants are not entirely convinced. There’s only a 45% chance of a rate cut being priced in for August. The hesitation from BoE officials to endorse these rate cut expectations has kept market speculation in check.
The UK’s annual headline inflation has returned to the central bank’s desired rate of 2%, but there’s still concern over wage growth and inflationary pressures in the service sector. Policymakers are cautious, fearing that cutting rates could fuel further inflation.
The Bigger Picture: Global Influences and Future Prospects
US Economic Data and Its Impact
The performance of the Pound Sterling is not just influenced by domestic factors. Global economic data, particularly from the United States, plays a significant role. The advanced US Q2 GDP data is a major market mover. The US economy is estimated to have grown by 2% from the previous release of 1.4% on an annualized basis, driven by strong consumer spending.
GBPUSD is moving in Ascending channel and market has fallen from the higher high area of the channel
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has shown sluggish performance. This has contributed to the pressure on the Pound Sterling. The upcoming US Personal Consumption Expenditures Price Index (PCE) data for June is also crucial. The core PCE inflation, which is the Federal Reserve’s preferred inflation gauge, is expected to have decelerated slightly, which could influence expectations for US interest rate cuts in September.
Looking Ahead: What to Expect?
As we move forward, the focus will be on a few key factors:
- BoE’s August Meeting: The Bank of England’s decision on interest rates will be closely watched. Any hints or announcements will have a significant impact on the Pound Sterling.
- US Economic Data: The release of US GDP and PCE data will provide insights into the health of the US economy and potential Fed actions.
- Global Market Sentiment: Broader market sentiment, influenced by geopolitical events and global economic trends, will continue to play a role.
Final Summary
The Pound Sterling’s recent struggles against the US Dollar can be attributed to a combination of domestic economic data, market speculation about the Bank of England’s next move, and broader global economic influences. While the UK’s preliminary S&P Global/CIPS report for July shows some positive signs, the uncertainty surrounding BoE’s potential rate cuts has kept the market on edge.
As we look ahead, the decisions made by the BoE in August and the upcoming US economic data will be crucial in determining the Pound Sterling’s trajectory. For now, market participants will continue to keep a close eye on these developments, navigating through the complexities of the current economic landscape.
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