Market Analysis

Pound Sterling Swings as Investors Await Updated BoE Interest Rate Guidance

Amos Simanungkalit · 01 Apr9.1K Views

The Pound Sterling (GBP) is experiencing a lack of definitive movement in Monday's London session, as FX investors are slow to return following a holiday-extended weekend due to Good Friday and Easter Monday.

The GBP/USD pair is maintaining a slight consolidation above the significant support level of 1.2600, with investors eagerly awaiting fresh guidance regarding potential interest rate adjustments from both the Bank of England (BoE) and the Federal Reserve (Fed).

Earlier projections suggested that the Fed would initiate interest rate cuts before the BoE, which had supported the Pound Sterling's strength against the US Dollar. However, current expectations indicate that the BoE may follow suit and commence rate cuts as early as June. Notably, two previously hawkish BoE policymakers, Catherine Mann and Jonathan Haskel, now view further rate hikes as unnecessary, citing their adverse effects on labor market conditions and consumer spending.

In a recent interview with Bloomberg, Catherine Mann explained her shift in stance, noting consumers' resistance to higher prices, particularly in service sectors like travel and hospitality. Mann also highlighted firms reducing working hours despite a need for more employment. Additionally, she pointed out that government cuts to social security rates are expected to increase the number of workers in the labor market.

Should the BoE opt for earlier-than-expected rate cuts after a prolonged period of rate hikes, the Pound Sterling could face depreciation pressures.

Meanwhile, the US Dollar Index (DXY) is maintaining a relatively stable position around 104.50 as investors await the release of crucial United States Nonfarm Payrolls (NFP) data for March, scheduled for Friday. This data release is a significant driver of market sentiment regarding potential Fed rate adjustments.

Technical Analysis: GBP/USD Consolidates around 1.2600

The GBP/USD pair continues to oscillate above the 1.2600 level, indicating a sideways trend as investors await fresh cues on interest rate prospects. Over the past six trading sessions, the pair has been confined within the 1.2575-1.2675 range, with support from the 200-day Exponential Moving Average (EMA) near 1.2590 bolstering Pound Sterling bulls.

Looking ahead, horizontal support at 1.2500, stemming from the December 8 low, is poised to provide additional reinforcement for the Pound Sterling, while upside potential remains capped around the eight-month high of approximately 1.2900.

The 14-period Relative Strength Index (RSI) is hovering around the 40.00 mark, with a potential dip below signaling bearish momentum.

Additional Insights on the Pound Sterling (GBP):

The Pound Sterling, dating back to 886 AD, is the world's oldest currency and serves as the official currency of the United Kingdom. It ranks as the fourth most traded currency in the global FX market, accounting for 12% of all transactions, with an average daily turnover of $630 billion (2022 data). Key currency pairs involving GBP include GBP/USD ('Cable'), accounting for 11% of FX transactions, GBP/JPY ('Dragon'), and EUR/GBP.

The value of the Pound Sterling is predominantly influenced by monetary policy decisions made by the Bank of England (BoE), which aims to maintain price stability with a target inflation rate of around 2%.

Interest rate adjustments serve as the primary tool for achieving this goal, with rate hikes typically strengthening GBP by attracting global investors seeking higher returns. Economic indicators such as GDP, PMIs, and employment data also impact GBP value, with positive economic performance typically bolstering the currency.

The Trade Balance is another crucial indicator affecting the Pound Sterling, measuring the difference between a country's exports and imports. A positive balance strengthens the currency, reflecting increased demand for exports, while a negative balance tends to weaken GBP.