In Monday’s London session, the Pound Sterling (GBP) showed resilience against the US Dollar (USD), trading around 1.2650 following a notable decline last week. The rebound in the GBP/USD pair coincided with a pause in the US Dollar Index (DXY), which struggled to breach immediate resistance at 106.00.
The US Dollar’s near-term outlook received a boost from the preliminary S&P Global Purchasing Managers Index (PMI) report for June. Surprisingly, both the manufacturing and service sectors showed expansion, with the Composite PMI rising to 51.7, exceeding expectations for a decline to 51.0. This data buoyed sentiment among Federal Reserve (Fed) policymakers, particularly regarding inflation, which has moderated to align closely with the Fed’s 2% target.
Market Dynamics and Monetary Policy
The Pound Sterling exhibited strength against most major currencies except the Euro, despite expectations in financial markets that the Bank of England (BoE) may commence interest rate cuts starting from its August meeting. The BoE’s recent monetary policy statement hinted at a finely balanced decision to maintain rates at 5.25%, signaling potential rate cuts in the near future. Market sentiment for rate cuts strengthened as annual headline inflation returned to the BoE’s target of 2%.
BoE Governor Andrew Bailey acknowledged the positive development but highlighted concerns over persistent service sector inflation, which slowed marginally to 5.7% in May. Investors had anticipated a more pronounced decline to 5.5%, underscoring ongoing price pressure challenges.
Economic Concerns and Technical Analysis
Despite these factors, concerns about the UK’s economic trajectory surfaced after the S&P Global/CIPS PMI report revealed unexpected sluggishness in the service sector in June, attributed in part to pre-election uncertainty impacting business decisions. Conversely, the Manufacturing PMI outperformed expectations, providing a contrasting signal.
Technically, the GBP/USD pair found interim support near 1.2620, but its near-term outlook remains uncertain as it dipped below key moving averages and the 61.8% Fibonacci retracement support level at 1.2667. The 14-day Relative Strength Index (RSI) indicated a fading upside momentum, reflecting cautious market sentiment.
Conclusion
Amid economic data releases and evolving market sentiment, the Pound Sterling exhibited resilience against the US Dollar, navigating through mixed signals in the UK and global economic landscape. As uncertainties persist, particularly around inflation and economic recovery, market participants continue to monitor central bank policies and data releases for further insights into future currency movements.
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