Pound Sterling declines ahead of US Q2 flash GDP

• The Pound Sterling declines against the US Dollar to nearly 1.2880 amid dismal market sentiment ahead of advanced US Q2 GDP data.
• Firm preliminary S&P Global/CIPS PMI for July has improved the UK’s economic outlook.
• BoE officials hesitate to authenticate market speculation for a rate cut in August.

The Pound Sterling (GBP) weakens to 1.2880 against the US Dollar (USD) in Thursday’s London session. The GBP/USD pair declines on sour market sentiment ahead of the advanced United States (US) Q2 Gross Domestic Product (GDP) data, which will be published at 12:30 GMT. 

S&P 500 futures posted some gains in European trading hours, but this appears to be a slight pullback move after nosediving by 2.31% on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, exhibits a sluggish performance at around 104.30.

The US Q2 GDP is estimated to have grown by 2% from the former release of 1.4% on an annualized basis. A higher growth rate is expected to result from strong consumer spending. Per the consensus, the advanced GDP Price Index is expected to have decelerated to 2.6% from the prior reading of 3.1%, which would bring relief for Federal Reserve (Fed) policymakers and cement expectations of interest rate cuts in September.

Going forward, the major trigger for the US Dollar will be the Personal Consumption Expenditures Price Index (PCE) data for June, which will be published on Friday. The core PCE inflation, the Fed’s preferred inflation gauge, is estimated to have decelerated to 2.5% from May’s figure of 2.6%, with the monthly figure growing steadily by 0.1%.

Daily digest market movers: Pound Sterling drops on firm BoE rate-cut prospects

• The Pound Sterling exhibits a poor performance against its major peers, except the Australian Dollar (AUD) and the New Zealand Dollar (NZD), on Thursday. The British currency has faced significant pressure as market experts see the Bank of England (BoE) pivoting to policy normalization in August.
• A Reuters poll conducted July 18-24 showed that more than 80% of economists said the BoE will reduce its key borrowing rates by 25 basis points (bps) to 5% in the August meeting. However, the prediction of a rate-cut in June’s poll was higher, with 97% of respondents favoring a rate-cut move. Contrary to Reuters’ poll, market participants are only pricing in a 45% chance for rate cuts in August.
• An absence of BoE officials’ endorsement for rate cuts seems to have kept market speculation limited. The United Kingdom’s annual headline inflation has returned to the central bank’s desired rate of 2%. However, policymakers hesitate to authenticate rate-cut expectations amid fears of wage growth remaining persistent, which fuels inflationary pressures in the service sector. 
• On the economic data front, the upbeat preliminary UK S&P Global/CIPS report for July has indicated a firm start to the third quarter. The Composite PMI came in higher at 52.7 than estimates of 52.6 and the former release of 52.3 due to an increase in activities in the manufacturing as well as service sectors. The Manufacturing and Services PMI expanded to 51.8 and 52.4, respectively, outperforming their former releases.

Technical Analysis: Pound Sterling slips below 1.2900

The Pound Sterling skids below the crucial support of 1.2900 against the US Dollar. The GBP/USD pair trades in a Rising Channel formation on a daily timeframe, in which each pullback move is considered a buying opportunity by market participants. The Cable holds the key 20-day Exponential Moving Average (EMA), which trades around 1.2866.

The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded. However, the bullish bias remains intact.

On the upside, a two-year high near 1.3140 will be a key resistance zone for the Cable.