- The Bank of England lowered their key lending rate by 0.25 on Thursday of last week. The GBP/USD which had been trading near the 1.33700 ratio jumped towards the 1.34300 mark rather quickly upon the news.
- Then the GBP/USD sustained its near-term high realm and went into the weekend around 1.34510. The last time this value was seen in a sustained manner was in the last week of July.
- Forex has been quite turbulent the past month of trading. Highs that were seen in late June and early July against the USD disappeared as a lack of Fed clarity hurt outlooks.
- The GBP/USD has correlated to the broad market well. The price action seen in the currency pair the past week as the GBP/USD began its trading on Monday near the 1.32860 ratio, and then climbed incrementally reaching a near-term apex this past Friday also matched price action in the broad Forex market.
Yes, tariff news is still making headlines, but many financial institutions are not paying attention to the noise within the GBP/USD. Instead they are focusing on the U.S Federal Reserve and what it will do in September. The weaker U.S job numbers seen on the 1st of August greased the wheels for buyers of the GBP/USD last week. The Bank of England did help a bit by doing what was expected when they cut their Official Bank Rate to 4.00%, but there was additional firepower from the U.S being used by financial institutions to create momentum.
While it may not make a lot of news the fact that the Federal Reserve has had a new Fed Governor named by the Trump administration, replacing a Biden appointee who recently resigned is important. Steven Miran will serve as a voting member of the FOMC until the end of January. This means the September interest rate decision by the Fed is more likely to produce a lower Federal Funds Rate by 0.25%. Financial institutions have priced this into the GBP//USD mostly likely now.
The move higher in the GBP/USD puts it squarely back into focus of the 1.35000 level as a target. Perhaps day traders will not be able to wager on this distant target if they are using too much leverage and can only hold a position for a couple of hours. Quick hitting trades remain a solid tactic for smaller traders.
- However, financial institutions may be leaning into USD centric weakness perspectives again.
- This week will be important because of financial data from the U.S and U.K which will effect the GBP/USD.
- CPI data will come from the U.S on Tuesday, the inflation numbers will definitely influence sentiment and if the numbers meet anticipated levels and do not come in dramatically higher this could spur more GBP/USD buying.
- Then on Thursday growth numbers via GDP will come from the U.K and more inflation statistics will come from the U.S.
Day traders have likely had a difficult time in the GBP/USD if they have not been using adequate risk management. Forex has been volatile across the board for a handful of months. Perspectives have been shifting as U.S economic data has been published and debated, and political games have been played rather loudly.
Financial institutions have been confronted with trying to create safe purchasing windows for their commercial clients who seek cash forward positions. The coming weeks may actually start to prove rather intriguing.
If U.S inflation this week comes in tame that could set the table for a weaker USD viewpoint which can be acted on by financial institutions. If the GBP/USD sustains its values early this week and the U.S CPI number is gentle on Tuesday, this could spur on more confidence. Day traders need to be aware that large speculators may step into the GBP/USD early on Tuesday and start to position before the CPI numbers are published, setting the stage for more volatility and sharp choppiness.
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