In Tuesday’s London session, the Pound Sterling (GBP) saw a decline against the US Dollar, with the GBP/USD pair dropping to 1.2540. This downward movement was driven by the US Dollar’s continued strength, as evidenced by the US Dollar Index (DXY) rising to 105.25, tracking its value against six major currencies.
Despite recent weaknesses in various economic indicators such as diminished labor demand, slower wage growth, and a contraction in Services PMI for April, investors maintain confidence in the economic outlook of the United States. This sentiment suggests that the Federal Reserve (Fed) may take a more measured approach towards interest rate cuts compared to central banks of other developed nations.
However, the disappointing US economic data has fueled expectations for a potential interest rate reduction by the Fed at its September meeting. Nevertheless, uncertainty looms over the timing of such rate cuts, as policymakers perceive the current monetary policy framework as adequate. New York Fed Bank President John Williams remarked on Monday that while rate cuts may eventually occur, the current monetary policy stance is deemed favorable.
In the daily market movements, the Pound Sterling faced considerable selling pressure around the key resistance level of 1.2600 against the US Dollar. This pressure led to a sharp decline in the GBP/USD pair, fueled by investor convictions that the Bank of England (BoE) might initiate rate cuts earlier than the Fed.
Market expectations anticipate the BoE to commence rate reductions in August, contrasting with the Fed’s anticipated actions in September. Despite the disappointment in Nonfarm Payrolls (NFP) and Services PMI data for April, this outlook consistently bolsters the US Dollar.
Investors are keenly awaiting the BoE’s monetary policy decision, scheduled for announcement on Thursday. While the BoE is widely expected to maintain interest rates at 5.25% for the sixth consecutive time, any commentary regarding the interest rate outlook will be pivotal for investors to gauge the Pound Sterling’s next move.
BoE Governor Andrew Bailey expressed optimism last month regarding headline inflation returning to the desired 2% rate in April. Additionally, during the last monetary policy meeting, he indicated comfort with market expectations of two or three rate cuts for the year.
Technical Analysis: Pound Sterling Under Pressure Near 1.2600
The Pound Sterling experienced a decline from the 1.2600 level, consolidating within a narrow range around 1.2550. The short-term outlook for the GBP/USD pair remains uncertain, with stabilization yet to occur above the 20-day Exponential Moving Average (EMA) situated around 1.2520.
Selling pressure is evident near the neckline of the Head and Shoulder chart pattern formed on the daily timeframe. On April 12, a significant sell-off was recorded after the Cable breached the neckline of the H&S pattern, traced back to the low of December 8 around 1.2500.
The 14-period Relative Strength Index (RSI) fluctuates within the 40.00-60.00 range, signaling indecision among market participants.
