Market Analysis

As investors search for new Fed and BoE interest rate cues, the value of the pound sterling fluctuates

Amos Simanungkalit · 27 Aug 202441.4K Views

The Pound Sterling (GBP) is holding steady near the 1.3200 level against the US Dollar (USD) during Tuesday’s London session. The GBP/USD pair is consolidating after last week’s significant gains, as investors await new insights on the potential scale of the Federal Reserve’s (Fed) interest rate cut in September.

The CME FedWatch tool indicates that the likelihood of a 50-basis-point (bps) rate cut in September stands at 28.5%, with the majority anticipating a smaller cut of 25 bps. The tool clearly reflects that traders have already factored in the Fed’s move towards policy normalization, which has kept the US Dollar under pressure for over a week.

The US Dollar Index (DXY), which measures the Greenback against six major currencies, remains subdued, struggling below the key resistance level of 101.00.

On Monday, San Francisco Fed President Mary Daly highlighted the necessity of cutting interest rates in September, advocating for a 25 bps reduction but leaving open the possibility of a larger cut if the labor market worsens, as she stated in a Bloomberg interview.

Investor confidence that the Fed will start lowering rates in September was bolstered by Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday. Powell suggested that it is time for policy adjustments and expressed concerns about the labor market while committing to support it.

This week, market attention will turn to the US core Personal Consumption Expenditure (PCE) Price Index data for July, set to be released on Friday. The annual core PCE is projected to rise to 2.7% from 2.6%, with monthly figures expected to increase by 0.2%. Prior to this, Tuesday will see the release of the S&P/Case-Shiller Home Price Indices for June and The Conference Board’s Consumer Confidence Index for August.