The Pound Sterling (GBP) saw a significant rebound against its major peers during Wednesday’s London session, buoyed by positive preliminary S&P Global/CIPS Purchasing Managers’ Index (PMI) data for July. The Composite PMI came in higher at 52.7, surpassing both the estimate of 52.6 and the previous release of 52.3, reflecting increased activity in both the manufacturing and service sectors. The Manufacturing PMI rose to 51.8 and the Services PMI to 52.4, both outperforming their prior figures.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented on the flash PMI data, saying, “The first post-election business survey paints a welcoming picture for the new government, with companies operating across manufacturing and services gaining optimism about the future. They report a renewed surge in demand and increased hiring. Prices have risen at their lowest rate in three and a half years, further raising the prospect of a summer rate cut.”
Earlier, the British currency had been under pressure due to speculation that the Bank of England (BoE) would begin cutting interest rates in August. Analysts believe that the UK economy is struggling to cope with the BoE’s high interest rates. The effects of a restrictive monetary policy are evident in household spending, with the UK’s Retail Sales contracting faster than expected in June.
Despite these challenges, BoE officials have refrained from endorsing rate cuts due to persistent high inflation in the service sector, which grew by 5.7% in June.
Daily Market Movers: Pound Sterling Rebounds Amid Mixed Signals
On Wednesday, the Pound Sterling weakened to nearly 1.2880 against the US Dollar (USD) during European trading hours. The GBP/USD pair continued its correction below 1.2900 amidst increasing risk aversion. Meanwhile, the US Dollar maintained gains ahead of a series of crucial US economic data releases. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, hovered near a weekly high of around 104.50.
Investors are also anticipating the preliminary US S&P Global PMI data for July, set to be released at 13:45 GMT. Expectations are that the Manufacturing PMI will show a slight expansion to 51.7 from June’s 51.6, while the Services PMI is estimated to expand at a slower pace of 54.4 compared to the previous 55.3. These reports will provide insight into the current state of the US economy.
Key triggers for the US Dollar this week include the preliminary annualized Q2 Gross Domestic Product (GDP) and the Personal Consumption Expenditures Price Index (PCE) data for June, scheduled for Thursday and Friday respectively. The US economy is expected to have grown by 1.9%, up from the previous 1.4%.
Investors will closely watch the core PCE inflation, the Federal Reserve’s preferred inflation measure, for clues on when the central bank might start reducing interest rates. Financial markets currently anticipate the Fed to begin lowering its key borrowing rates in September.
Additionally, attention is focused on developments in the US presidential elections in November, with market experts predicting a win for Donald Trump, despite the Democratic nomination of Vice President Kamala Harris.
Technical Analysis: GBP/USD Struggles Below 1.2900
The Pound Sterling has dropped below the crucial support level of 1.2900 against the US Dollar. The GBP/USD pair fell near the horizontal support established from the March 8 high of 1.2900, previously a resistance level for the Pound Sterling bulls. The pair has approached the 20-day Exponential Moving Average (EMA), which is around 1.2860.
The 14-day Relative Strength Index (RSI) has returned to the 40.00-60.00 range, indicating that the bullish momentum has diminished, although the overall bullish bias remains.
On the upside, the pair faces a significant resistance zone near the two-year high of 1.3140. Conversely, the upward-sloping trendline from the April 22 low will act as a major support zone around 1.2750.
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