In the London session on Tuesday, the Pound Sterling (GBP) maintains levels above 1.2800 against the US Dollar (USD), with the GBP/USD pair showing subdued activity as market participants await Federal Reserve Chair Jerome Powell’s semi-annual Congressional testimony scheduled for 14:00 GMT.
Investors anticipate Powell to acknowledge progress in inflation while remaining cautious on rate cuts, emphasizing data-dependency and the need for sustained inflation decline before considering rate adjustments. Concerns over moderating US labor market strength might also feature in Powell’s remarks.
Market sentiment favors the Pound (GBP) as speculation grows regarding potential Fed rate cuts starting as early as September. According to the CME FedWatch tool, probabilities of rate cuts in September have increased to 77%, up from 65.6% a week ago. This shift follows the US Nonfarm Payrolls report for June, which signaled weakening labor market momentum.
Looking ahead, the focus for the US Dollar will center on Thursday’s release of the US Consumer Price Index (CPI) data for June. Expectations suggest steady growth in core inflation, with any signs of stalling or reversal likely influencing market expectations for Fed policy adjustments.
Meanwhile, the GBP’s performance against its peers remains subdued ahead of key UK economic data releases, including the monthly Gross Domestic Product (GDP) and factory data for May, scheduled for Thursday. The UK economy is forecasted to have expanded by 0.2% in May, following a period of stagnation in April, with improvements expected in Manufacturing and Industrial Production figures.
Bank of England (BoE) policymaker Jonathan Haskel’s stance on maintaining current interest rates underscores ongoing concerns over persistent inflationary pressures in the labor market, driven by robust wage growth. However, market expectations lean towards potential rate cuts starting from the BoE’s August meeting, contrary to Haskel’s preference for a more cautious approach.
In technical terms, the GBP/USD pair exhibits bullish signals, supported by an inverted Head and Shoulders pattern on the daily chart, with a neckline around 1.2850. The presence of advancing 20- and 50-day Exponential Moving Averages (EMAs) near 1.2725 and 1.2690, respectively, further reinforces the bullish sentiment. The 14-day Relative Strength Index (RSI) indicates bullish momentum, poised to sustain further upside moves upon maintaining levels above current thresholds.
As geopolitical and economic factors continue to influence market sentiment, investors remain watchful for Powell’s testimony and upcoming economic indicators that could shape near-term trends in the GBP/USD pair.
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