In Monday’s London session, the Pound Sterling (GBP) has maintained a tight range around 1.2550 against the US Dollar (USD) amid the closure of United Kingdom markets due to Early May observance. Market sentiment is expected to guide the GBP/USD pair, with volatility likely to remain subdued.
The GBP/USD pair grapples for direction as the US Dollar consolidates following the release of United States Nonfarm Payrolls (NFP) and the ISM Services Purchasing Managers Index (PMI) data for April. The US Dollar Index (DXY), which tracks the USD against major currencies, trades sideways above 105.00.
Despite signs of a weakening US economy – indicated by fewer job additions, a rise in the Unemployment Rate to 3.9%, slowing wage growth, and a decline in the ISM Services PMI below the 50.0 threshold – investors have not adjusted Federal Reserve (Fed) rate cut expectations from September. The significant rise in the ISM Prices Paid subindex for the service sector, however, has reignited concerns about persistently high inflation, potentially prompting the Fed to maintain interest rates at restrictive levels for an extended period.
The focus now shifts to the Bank of England‘s (BoE) upcoming interest rate decision, scheduled for Thursday. The BoE is widely expected to maintain interest rates at 5.25%, with investor attention turning to the central bank‘s guidance on future rate movements.
BoE Governor Andrew Bailey’s recent remarks indicating confidence in achieving the desired 2% inflation rate by April suggest a potentially dovish commentary on interest rates and a probable timeline for rate reductions. Financial markets anticipate rate cuts from the September meeting, with expectations for one additional cut by year-end.
While concerns about stubborn wage growth fueling service inflation persist among some BoE policymakers, the market awaits indications of potential shifts in stance, particularly from Deputy Governor Dave Ramsden, who may adopt a more dovish outlook on interest rates.
Technical analysis reveals the GBP/USD pair trading within Friday’s range, with the formation of a bearish Shooting Star candlestick pattern near the crucial resistance level of 1.2500-1.2600. A breakdown below Friday’s low of 1.2522 would confirm the pattern, potentially signaling further downside.
Despite near-term uncertainty, the Cable maintains a positive outlook, trading above the 20-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) oscillates, reflecting market indecisiveness within the 40.00-60.00 range.
