As the day unfolds, we notice the Pound Sterling experiencing noticeable selling pressure during North American trading hours. This comes on the back of recent UK reports regarding GDP and November’s factory performance. According to the Office for National Statistics (ONS), while the UK economy did bounce back from October’s downturn, the increase of just 0.1% fell short of the anticipated 0.2% growth. Economists had a slightly rosier prediction, which unfortunately wasn’t met.
When we delve into Manufacturing and Industrial Production numbers for November, there’s a clear decline compared to October, with production falling by 0.4% and 0.3% respectively. This drop, although milder than the previous month’s, was against economists’ expectations of a modest rise or at least stability in these sectors.
The ongoing struggles within the UK’s manufacturing sector indicate potential underutilization of capacity. This stems from concerns that global trade dynamics might worsen, especially if the then-upcoming policies of US President-elect Donald Trump impose heavy tariffs as feared.
However, there’s a glimmer of hope for the UK’s factory owners. Expectations are building around the Bank of England (BoE) potentially adopting a more relaxed approach to monetary policy this year. This stems from data showing a cooling in inflation, which has prompted traders to lean towards a dovish stance for the February policy meeting.
Currently, there’s an 84% probability being floated around the markets that the BoE may trim interest rates by 25 basis points to 4.5% come February, with economists predicting a further three cuts over the course of the year. This has been somewhat of a silver lining for Chancellor of the Exchequer Rachel Reeves, as the easing inflation has temporarily quelled the climb in UK gilt yields.
Recently, there’s been quite a stir with the Pound Sterling facing declines against several major currencies. Notably, it maintains a bit of an edge over the Canadian Dollar despite overall weakness in the markets. To sum up recent activity, the Pound has dipped by varying degrees across key currencies, highlighting the market’s complex dynamics.
Shifting focus to the US market, the Pound Sterling struggles just below the 1.2200 mark against the US Dollar. Notably, the US Dollar is gaining strength, underpinned by jobless claims and retail sales data. Initial jobless claims have seen higher figures with 217,000 claims, exceeding previous figures. Meanwhile, retail sales are ticking up, albeit slower than hoped.
Looking ahead, the trajectory of the US Dollar is likely to be shaped by the Federal Reserve’s monetary policy moves throughout the year. Market sentiment has shifted following inflation reports for December, signaling a potentially quicker path to interest rate reductions, with the first cut anticipated in June.
Technically speaking, the Pound Sterling remains under pressure, hovering near 1.2200 to the Dollar. The overall sentiment remains bearish with the 20-day Exponential Moving Average indicating a continued decline. Until the Pound regains some strength, possibly back in the 20.00-40.00 RSI range, the near-term outlook remains bleaker with support expected around 1.2050 if things take another downward turn.
Lastly, keeping an eye on key economic indicators like the Consumer Price Index excluding food and energy can offer a clearer picture of inflation trends, which are critical for both currency markets and overall economic health.
