London, Thursday – The Pound Sterling (GBP) exhibited resilience against the US Dollar in the London session on Thursday, propelled by investor optimism surrounding potential interest rate cuts by the Bank of England (BoE) and the Federal Reserve (Fed). Market expectations point towards rate cuts during the June and August policy meetings for the BoE and the Fed, respectively.
In addition to anticipations that the BoE might delay its rate cut compared to other G-7 central banks, the announcement of the fiscal stimulus scope in the UK’s 2024 budget further fortified the Pound Sterling.
Chancellor of the Exchequer, Jeremy Hunt, declared on Wednesday that the UK government aims to reduce public sector net debt and budgetary deficit while fostering economic growth.
Looking ahead, the UK’s Average Earnings data for the three months ending in January, set to be released next week, will offer fresh insights into inflation. Robust wage growth, nearly doubling the required level for inflation return to 2%, could temper market expectations for rate cuts, potentially benefiting the Pound Sterling.
Pound Sterling Extends Winning Spell
The Pound Sterling surged above 1.2700 as investors sought new perspectives on the interest rate outlook. Measures outlined in the UK Budget 2024 aligned with expectations, including a two-percentage cut to National Insurance Contributions (NICs), saving the average earner approximately £450 this year. Combined with last year’s reduction, workers stand to save £900.
Jeremy Hunt announced increased growth forecasts for 2024 and 2025, at 0.9% and 1.9% respectively. The government plans to elevate defense spending to 2.5% of the Gross Domestic Product (GDP), while lowering capital gains tax on property sales to 24% from 28%. Fuel and alcohol duty freezes have also been extended.
Market Outlook: Guided by Rate Cut Expectations
Investor focus remains on market expectations for BoE rate cuts, with anticipation for a reduction in interest rates starting in August. BoE policymakers emphasize the need for evidence of inflation returning sustainably to 2% before making such a decision.
Across the Atlantic, slowing labor demand, as indicated by the United States ADP Employment Change for February and JOLTS Job Openings data for January, exerts downward pressure on the US Dollar. The US Dollar Index (DXY) revisited a monthly low near 103.20.
Uncertainty surrounds the timing of a Federal Reserve rate cut, with Chair Jerome Powell expressing caution in his semi-annual monetary policy report to Congress, stating, “We do not expect it will be appropriate to reduce policy rates until we have greater confidence in inflation moving sustainably toward 2%.”
Technical Analysis: Pound Sterling at Monthly High
Pound Sterling’s winning streak continued for the fifth trading session, with the GBP/USD pair strengthening after breaking out of a Descending Triangle pattern on the daily time frame. The pair reached a fresh monthly high near 1.2760, signaling wider upward movement. The 20-day Exponential Moving Average (EMA) near 1.2670 indicates robust near-term appeal.
The 14-period Relative Strength Index (RSI) climbed above 60.00 for the first time in over two months, suggesting strong upside momentum with no overbought or divergence signals present.
