- At the end of last week's trading, both the pound sterling and the euro jumped against the US dollar after Federal Reserve Chairman Jerome Powell said in a speech that US financial conditions have recently tightened significantly.
- Therefore, this may have an impact on future decisions related to US interest rates.
- However, the gains of the upward rebound of the GBP/USD currency pair did not exceed the level of 1.2191 before it closed trading around the level of 1.2160, as pressure on the pound sterling continues.
Inflation in Focus
Fed Governor Powell declared in a speech in New York, “Financial conditions have tightened significantly in recent months, and long-term bond yields have been an important driving factor,” which “could have implications for monetary policy,”. Generally, comments acknowledge the recent role of rising US bond yields in making borrowing more expensive, representing a tightening of financial conditions. Ahead of Powell's speech, the markets were unsure whether the Fed would tighten financial conditions itself in November or December with another rate hike. Also, rising expectations of further appreciation, and the belief that the Fed will keep interest rates high for an extended period, proved vital support for the dollar's rise in August and October.
On the other hand, the sell-off in the dollar and lower bond yields suggest that the market's takeaways from Powell's declarations are that there are now significantly lower prospects for further rises.
On the other side, Bank of England Governor Bailey adds to sterling's woes with a strong hint from the Bank of England to keep interest rates unchanged in November. The Governor of the Bank of England confirmed that interest rates will not rise in November, in comments that could add more pressure on the pound. In an interview with the Belfast Telegraph, Bailey said he was “encouraged” by the direction of UK inflation: it was “not far from what we had expected.” “Core inflation was slightly lower than we expected, which is very encouraging.” He added that he expected a “real decline” in inflation next month.
The comments came after the Office for National Statistics last week announced a slight rise in headline British inflation to 6.7% year-on-year in September and core inflation to 6.1%.
Bailey's comments will add downward pressure to the performance of the pound, which fell against both the euro and the dollar last week, with fresh selling momentum following the release of some disappointing UK retail sales figures. British retail sales fell 1.0% during the year through September amid rising prices, according to data released on Friday. Separately, the GfK UK Consumer Confidence Survey also showed that consumer confidence fell in October by 14 points.
Meanwhile, wages fell short of expectations when they were announced on Tuesday, adding to a body of evidence suggesting there is little need for the bank to raise interest rates again. In turn, the rerating of lower expectations affects the British pound. The GBP/EUR exchange rate is now down by 0.20% during the same day at 1.1450 and the GBPUSD exchange rate is down by 0.26% at 1.2110.
GBP/USD Today's Forecast & Outlook
According to the performance on the daily chart below, the price of the sterling currency pair against the US dollar (GBP/USD) is still on its broader downward path, and as I mentioned before, stability around and below the support level of 1.2150 will support a stronger move for the bears towards the psychological support level of 1.2000 as soon as possible. I expect a calm trading session today, with the economic calendar devoid of important British and American economic releases, and accordingly, investor sentiment and the performance of financial markets will have the strongest reaction to the pair’s performance. On the other hand, over the same period, breaking the resistance levels 1.2330 and 1.2450 is important for breaking the general downward trend of the currency pair.
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