- Recently, the GBP/USD currency pair has risen to its highest level in two years, following Powell's call for a reduction in US interest rates.
- The GBP/USD gains reached the resistance level of 1.3230, the highest for the currency pair in more than a year and closed last week's trading stable around these gains.
- For his part, Federal Reserve Chairman Jerome Powell, in a clear indication that US interest rates are about to decline, said, "The time has come to adjust policy."
According to reliable trading platforms, the US dollar has reached its lowest level in two years against the British pound after Powell delivered these prepared remarks to delegates at the Jackson Hole economic symposium, which virtually agreed to cut interest rates next month.
However, the September cut is not new news; nor is the new news that the markets have received a signal that the Federal Reserve is ready to commit to further cuts in the coming months. Powell added, saying, "The slowdown in Labor market conditions is unambiguous. And it seems unlikely that the Labor market will be a source of elevated inflationary pressures anytime soon."
The GBP/USD exchange rate had risen to 1.32 - its highest level in two years - after financial markets tested further comments that "we are neither seeking nor welcoming further softening in labor market conditions.
This is a clear indication that the US Federal Reserve is now ready to defend growth to ensure that US job losses are reduced in the coming quarters. This will involve easing policies, which could boost risk assets such as stocks and the British pound. Powell said, "The time has come to adjust policies," also said, "the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving expectations, and the balance of risks."
He added, "We will do our best to support a strong labor market while making further progress toward price stability.
Overall, the comments increase the likelihood of a 50bp rate cut in September, a step forward from the 25bp move that the dollar had priced in before Powell’s speech.
This rise in expectations explains the sell-off in the US dollar.
Commenting on this, Nigel Green, CEO of deVere Group, said, "The Fed must cut US interest rates by 50 basis points in September to avoid a recession." Added, "Consumer confidence is shaky, spending is, and corporate profits are under threat. The Fed cannot afford to skirt around these warning signs with a cautious 25 basis point cut. "It's simply not enough."
However, Roger Quadvlieg, economist at ABN AMRO, says slowing that despite the relatively dovish tone, he still expects a 25bp cut as the broader picture continues to allow for a gradual easing cycle. Also, he added that he expects continued volatility as financial markets fluctuate between expectations of a 50bp cut or a more modest 25bp move, especially since there is another set of inflation and jobs data that still need to be considered before the September decision.
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Technical forecasts for the GBP/USD pair today:
The general upward trend in the GBP/USD price is gaining strength, considering that its recent gains were enough to push all technical indicators towards strong overbought levels. If the dollar finds a chance to recover, the GBP/USD pair may be exposed to strong profit-taking sales. Consequently, we still prefer selling the GBP/USD from every upward level. The current bullish control will be on a date with the announcement of the US inflation reading preferred by the US Federal Reserve, statements by global central bank officials, and the extent of investors' appetite for risk or not. The closest resistance levels for the GBP/USD are 1.3275 and 1.3330, respectively.
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