The Pound Sterling (GBP) grapples with indecision during Monday’s London session, as investor activity remains subdued following the extended holiday weekend encompassing Good Friday and Easter Monday. The GBP/USD pair hovers marginally above the critical support level of 1.2600, reflecting a consolidative stance among traders awaiting fresh cues regarding potential rate adjustments from both the Bank of England (BoE) and the Federal Reserve (Fed).
Earlier projections suggested that the Fed would initiate interest rate cuts before the BoE, bolstering the GBP’s position against the US Dollar. However, current market sentiment indicates a reversal, with expectations mounting for the BoE to follow suit and implement rate reductions starting from June. Notably, two prominent BoE policymakers, Catherine Mann and Jonathan Haskel, previously regarded as hawks, have shifted their stance, citing concerns over labor market dynamics and consumer spending.
Mann, in a recent interview with Bloomberg, retracted her previous rate hike stance, citing consumer reluctance to embrace higher prices in service sectors such as travel and hospitality. Additionally, she highlighted a trend of firms reducing work hours despite the need for increased employment, attributing this to government measures impacting social security rates.
Speculation surrounding an early BoE rate cut has cast a shadow on the Pound Sterling’s outlook, particularly after a prolonged period of rate hikes spanning over two years.
Concurrently, the US Dollar Index (DXY) exhibits lateral movement around 104.50, as market participants await the release of the pivotal United States Nonfarm Payrolls (NFP) report for March, slated for Friday. This report holds significant sway over Fed rate cut expectations, shaping investor sentiment towards the US Dollar.
GBP Tracks USD’s Lead
The Pound Sterling maintains a tight trading range slightly above 1.2600, with investors seeking clarity on the BoE’s timeline for interest rate adjustments. Market sentiment has shifted towards expectations of BoE rate cuts commencing as early as the June meeting, spurred by the central bank‘s perceived dovish tone in its recent monetary policy statement.
BoE policymakers’ unanimous decision against a rate hike signals a dovish stance, indicative of concerns regarding the current interest rate level’s restrictiveness. Additionally, Governor Andrew Bailey’s remarks post the latest BoE meeting have bolstered expectations for multiple rate cuts in the coming year.
Attention now turns to the United Kingdom’s S&P Global/CIPS Manufacturing PMI final data for March, scheduled for release on Tuesday. Investors eagerly await insights into businesses’ outlook on domestic and global demand, particularly amidst concerns of a manufacturing sector slowdown.
Furthermore, optimism prevails in risk-sensitive markets, evidenced by positive movements in S&P 500 futures. Expectations of Fed rate cuts commencing from June have buoyed market sentiment.
In today’s session, focus shifts to the United States ISM Manufacturing PMI for March, expected to signal an uptick to 48.4 from February’s 47.8. This data release will provide further insights into the health of the US manufacturing sector and its implications for the broader economy.
Technical Analysis: GBP Consolidates Around Key Support Level
The GBP/USD pair continues its consolidation phase above the critical support level of 1.2600, reflecting a lack of clear direction in the market. Trading within the 1.2575-1.2675 range over the past six sessions, the Cable finds support from the 200-day Exponential Moving Average (EMA) near 1.2590, bolstering bullish sentiment.
On a broader timeframe, horizontal support at 1.2500 from the December 8 low offers additional reinforcement for GBP bulls. However, upside potential remains capped around the eight-month high near 1.2900.
The 14-period Relative Strength Index (RSI) hovers around the 40.00 mark, signaling a neutral stance. A dip below this level could trigger bearish momentum, impacting the GBP’s performance against the USD.
