The British Pound is expected to face selling pressures towards 1.2800 against the US Dollar, due to speculative rate cut in September, and a disappointing US factory PMI report indicating potential weakness in the American manufacturing sector.
Service inflation in the UK continues to be a challenge, raising concerns about the stability of the country’s economy, and may dampen economic growth and consumer spending. Officials from the Bank of England are considering severe measures, including possible interest rate hikes.
Traders believe the Federal Reserve will commence interest rate cuts from their September meeting, as the May US ISM report indicated weakening in the US economy. This belief has led to a significant drop in the US Dollar, marking a new two-month low.
The recent PMI report shows the US manufacturing activity slower than projected, recording 48.7, due to companies hesitating with their investments under current financial policies.
The Pound Sterling has slightly declined against the recovering US Dollar. According to the CME FedWatch tool, there’s a 60% probability that interest rates will drop by September, potentially increasing borrowing and stirring economic activity.
Pound and dollar volatility under rate changes
However, investors are advised to view these predictions cautiously.
Despite speculation on Bank of England interest rate cuts, the impact on the Pound Sterling is expected to be minor due to the absence of significant economic revelations and the silence from BoE officials till after the elections. Service inflation remains a concern, even as the UK’s annual headline Consumer Price Index has dropped to 2.3%.
Bank of England officials are expected to adopt a wait-and-see strategy post elections, with speculation on interest rate cuts being merely informative. The Bank of England is likely to continue its vigilant approach towards managing service inflation effectively.
Predictions suggest a bullish trend for the Pound Sterling as it remains stable above the 78.6% Fibo retracement. The 14-period Relative Strength Index has shifted into the 40.00-60.00 range, indicating increased momentum. Investors are advised to keep an eye on the potentially increasing value of the Pound.
