GBP/USD tests 1.33 amid prevailing dollar weakness | 20 September 2024

GBPUSD:

On Thursday, the GBP/USD currency pair reached a new 30-month high. A significant decline in the value of the US dollar prompted a risk-averse response in the cable market, resulting in a notable strengthening of the British pound. The Federal Reserve's (Fed) 50bp rate cut this week has prompted a risk-on stance across global markets, while the Bank of England's (BoE) concerns over rate retention have not resulted in a further strengthening of the Pound.

The only significant indicator on Friday will be UK retail sales for August, but it is unlikely to have a significant impact as investors are fatigued following the dual central bankers – the Fed and the Bank of England. Analysts anticipate a slight decline in UK retail sales for August, with a projected decrease from the previous reading of 0.5% to 0.4%. The annual figure is expected to remain at 1.4%.

On Thursday, the Bank of England voted seven to one in favour of maintaining interest rates at 5.0%, as expected. The Bank of England initiated a reduction in interest rates earlier in the summer, lowering them by a quarter point at its most recent meeting. However, this action may have been premature. Bank of England policymakers are awaiting further evidence of the UK economy's performance before making any further adjustments to interest rates.

In the US, initial jobless claims for the week ending 13 September fell to 219,000, down from the previous week's revised 231,000 and below the median market forecast of 230,000. The latest manufacturing activity survey from the Philadelphia Fed for September also exceeded expectations, with the manufacturing conditions index rising to 1.7 from the previous seven-month low of -7.0 and well above the -1.0 forecast.

In a statement to the markets, Fed Chairman Jerome Powell asserted that the 50bp rate cut implemented by the Fed this week was not a hasty reaction to deteriorating economic conditions. Instead, Powell explained that the move was an attempt to proactively support the US labour market. Powell was successful in suggesting that a rate cut of up to 0.5% should be renamed a 'recalibration'. Investors rewarded the Fed's latest strategy by investing in riskier assets and reducing their holdings of the safe-haven US dollar.

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

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