Pound sterling in anticipation of strengthening | 30 August 2024

GBPUSD:

The GBP/USD currency pair saw a third consecutive session of losses, with trading near 1.3160 during Asian hours on Friday. The decline can be attributed to the strengthening of the US dollar (USD) following the release of stronger-than-expected economic data on Thursday. Investors are awaiting the release of the July Personal Consumption Expenditure (PCE) price index, which is scheduled for later in the North American session.

The annualised growth in US gross domestic product came in at 3.0% in the second quarter, exceeding both the anticipated and previous growth rate of 2.8%. Additionally, the number of individuals filing initial jobless claims decreased to 231,000 for the week ending August 23, a decline from the previous reading of 233,000 and slightly below the projected 232,000.

However, dovish comments from Federal Reserve officials may prevent the dollar from gaining further strength. On Thursday, Raphael Bostic, President of the Federal Reserve Bank of Atlanta and a prominent member of the FOMC, suggested that it may be an appropriate time to consider lowering interest rates due to the further cooling of inflation and higher-than-expected unemployment. However, Bostic is awaiting confirmation from the upcoming monthly jobs report and two inflation reports before making a decision at the Fed's September meeting.

The decline in the value of the pound sterling (GBP) may be limited as market participants anticipate that the Bank of England (BoE) will maintain higher interest rates for a longer period of time than the US Federal Reserve (Fed). On 1 August, the Bank of England cut rates by 25 basis points to 5%. Money markets are forecasting another 40 basis point cut before the end of the year.

In a speech at a symposium in Jackson Hole last week, Bank of England Governor Andrew Bailey indicated that the effect of inflationary pressures in the second half of the year would be less significant than expected. However, he also advised against rushing into additional interest rate cuts, as reported by Reuters.

Trading recommendation: Trading predominantly Buy orders from the current price level.

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