The Pound Sterling (GBP) continues to hold the crucial support level of 1.2900 against the US Dollar (USD) in Tuesday’s London session. Despite edging down, the GBP/USD pair remains within the narrow range of 1.2900-1.2940 as the recovery in the US Dollar, driven by speculation of Donald Trump winning the US presidential election in November, has stalled with attention shifting to a series of economic data releases this week.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, hovers near 104.30.
This week, investors will focus on the US preliminary S&P Global Purchasing Managers Index (PMI) for July, Q2 Gross Domestic Product (GDP), and Durable Goods Orders and Personal Consumption Expenditures Price Index (PCE) data for June. These economic indicators could provide fresh insights into when the US Federal Reserve (Fed) might begin reducing interest rates this year.
Economists expect the Manufacturing PMI, scheduled for Wednesday, to have expanded marginally to 51.7 from June’s reading of 51.6. The Services PMI, a measure of activities in the service sector, is estimated to have slowed to 54.4 from the previous release of 55.3.
According to the CME FedWatch tool, 30-day Federal Fund futures indicate that the central bank may start lowering its key borrowing rates in the September meeting. The Fed is also anticipated to cut interest rates again in November or December.
Daily Digest: Pound Sterling Drops Against Major Peers
The Pound Sterling weakened against its major peers, except the Australian Dollar (AUD) and the New Zealand Dollar (NZD), amid increasing speculation that the Bank of England (BoE) will start cutting its key interest rates from the August meeting. Asia-Pacific currencies have been under pressure due to their strong linkage with China’s economic outlook, with investors raising concerns over the weaker-than-expected Q2 GDP growth of the world’s second-largest economy.
Expectations for the BoE to pivot towards policy normalization have increased as higher interest rates have strained individual finances. The recent UK Retail Sales report for June showed that receipts at retail stores unexpectedly contracted by 0.2% year-over-year, contrary to expectations of growth at a similar pace. Monthly Retail Sales declined by a faster-than-expected 1.2%.
Additionally, the anticipated deceleration in Average Earnings, a key measure of wage growth momentum that influences inflation in the service sector, has also boosted expectations of BoE rate cuts. Although wage growth has slowed as expected in the three months ending in May, it remains higher than the level needed to boost officials’ confidence for rate cuts.
Looking ahead, the major trigger for the Pound Sterling will be the UK preliminary S&P Global/CIPS PMI data for July, to be published on Wednesday. The report is expected to show that the Manufacturing PMI expanded to 51.1 from the previous release of 50.9. The Composite PMI is estimated to have increased to 52.6 from 52.3 in May.
Technical Analysis: Pound Sterling Hovers Near 1.2900
The Pound Sterling is oscillating in a tight range above the critical support level of 1.2900 against the US Dollar. The GBP/USD pair weakened after facing a sell-off from a fresh annual high of 1.3044 last Wednesday.
The upward-sloping 20-day Exponential Moving Average (EMA) near 1.2860 suggests that the uptrend remains intact. The 14-day Relative Strength Index (RSI) has declined after reaching slightly overbought levels and is expected to find support near 60.00.
On the upside, a two-year high near 1.3140 will be a key resistance zone for the pair. Conversely, the March 8 high near 1.2900 will be a crucial support level for Pound Sterling bulls.
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