In the London session on Tuesday, the Pound Sterling (GBP) experienced a modest decline from its recent two-week high of 1.2570 against the US Dollar (USD), yet it maintains a position above the psychologically significant support level of 1.2500. The GBP/USD pair faces downward pressure as market participants anticipate the upcoming monetary policy announcement from the US Federal Reserve (Fed), scheduled for Wednesday, seeking fresh guidance.
The week ahead promises a flurry of data releases in the United States, which is poised to keep the US Dollar on edge. Conversely, the economic calendar in the United Kingdom remains relatively light, placing emphasis on market speculation regarding the Bank of England’s (BoE) interest rate policy announcement on May 9. While the consensus expects the BoE to maintain the status quo, indications suggest a slightly dovish tone regarding interest rate guidance.
BoE Governor Andrew Bailey anticipates a notable decline in April’s headline inflation figures and views market expectations of two or three rate cuts this year as reasonable. Additionally, BoE Deputy Governor Dave Ramsden has expressed that the risks of persistent inflation have diminished. Attention now turns to the potential timeframe for the initiation of interest rate reductions, with market sentiment split between the June and August meetings for potential action.
Pound Sterling Faces Pressure as US Dollar Rebounds
Efforts to extend gains beyond the immediate resistance of 1.2560 against the US Dollar encounter resistance, with cautious sentiment prevailing as investors pivot towards the Federal Reserve’s impending interest rate decision. Reflecting this cautious sentiment, S&P 500 futures display a decline in risk appetite during the European session. Investor focus centers on interest rate guidance, with policymakers expected to maintain rates within the 5.25%-5.50% range.
March’s inflation metrics indicate persistent upward pressure attributed to robust consumer spending and tight labor market conditions, potentially prolonging the Fed’s commitment to maintaining higher interest rates. Anticipated policy continuity persists until sufficient evidence emerges indicating a sustainable return of inflation to the desired 2% target rate.
The US Dollar Index (DXY) rebounds towards the 106.00 mark amid expectations of a hawkish stance from the Fed. Ahead of the policy announcement, market attention is drawn to key data releases, including the ADP Employment Change and ISM Manufacturing Purchasing Managers Index (PMI) for April. Forecasts suggest a slight dip in US private employment figures and a marginal decrease in the ISM PMI, reflecting ongoing economic dynamics.
Pound Sterling Retains Support Amidst Chart Patterns
Following a retreat from the recent high of 1.2570 against the US Dollar, the GBP/USD pair exhibits resilience above the crucial support level of 1.2500. Recent price action aligns with a Head and Shoulders chart pattern breakdown observed on the daily timeframe since April 12, though subsequent recovery efforts have been noted.
Supporting a near-term positive outlook, the GBP/USD pair trades comfortably above the 20-day Exponential Moving Average (EMA), positioned around 1.2516. Meanwhile, the 14-period Relative Strength Index (RSI) indicates a consolidation phase within the 40.00-60.00 range, suggesting potential stability in the immediate future.
