Pound Sterling flirts with two-year high ahead of Powell, Bailey’s speeches

• The Pound Sterling outperforms the US Dollar as Fed rate-cut bets remain firm.
• Investors await the speeches from Fed Powell and BoE Bailey to get fresh guidance on the US and the UK interest-rate outlook.
• The BoE is expected to cut interest rates gradually.

The Pound Sterling (GBP) extends its winning streak for a seventh trading session against the US Dollar (USD) on Friday. The GBP/USD pair trades within a touching distance of a year-to-date high of 1.3130 as the US Dollar (USD) struggles to hold its Thursday’s upward move, which was mostly driven by better-than-projected flash United States (US) S&P Global PMI data for August.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near 101.40 and is expected to perform sideways ahead of Federal Reserve (Fed) Chair Jerome Powell’s speech at 14:00 GMT in the Jackson Hole (JH) Symposium.

Investors will look for cues about the potential size of interest rate cuts in September, given that the Fed is widely anticipated to pivot to policy normalization. Market participants will also expect some interest-rate guidance and economic performance for the rest of the year.

Philadelphia Fed Bank President Patrick Harker said in an interview at the JH event on Thursday that the central bank should focus more on a steady course of easing, which should be started from September, rather than the size of policy action, reported Reuters.

Separately, Boston Fed Bank President Susan Collins also showed support for interest rate cuts in September. Collins remained confident about the Fed achieving its goals without triggering a recession. 

Daily digest market movers: Pound Sterling outperforms on optimism over BoE’s slower policy-easing process

• The Pound Sterling performs strongly against its major peers, except Asia-Pacific currencies, on firm speculation that the Bank of England’s (BoE) policy-easing cycle will be slower than that of other major central banks. Robust expectations for a slower BoE policy-normalization process are backed by a strong United Kingdom (UK) economic outlook and still high wage growth.
• Flash UK S&P Global/CIPS PMI data for August, released Thursday, showed that the overall business activity rose at a faster pace to a four-month high at 53.4, driven by a strong expansion in manufacturing as well as the services sector. The report also signaled a sharp reduction in the backlog of work and positive sentiment towards the business outlook that points to strong job creation.
• These strong economic prospects, however, are unlikely to ease market speculation of one more interest rate cut by the BoE this year as input prices in the service sector eased to their lowest level in just over three-and-a-half years in August. This is a relief for BoE policymakers as they appeared uncomfortable in cutting interest rates while inflation in the service sector remains elevated.
• Apart from Powell, investors also await BoE Governor Andrew Bailey’s speech at the JH Symposium, which is scheduled at 19:00 GMT. Andrew Bailey is expected to provide fresh cues about whether the BoE will cut interest rates in September.

Technical Analysis: Pound Sterling aims to recapture a two-year high of 1.3140

The Pound Sterling is inch far from revisiting a more-than-two-year high of 1.3140. The GBP/USD pair moves higher in a Rising Channel chart pattern in which each pullback is considered a buying opportunity by market participants. All short-to-long Exponential Moving Average (EMA) are sloping higher, suggesting that the overall trend is bullish.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. Still, it has reached overbought levels at around 70.00, increasing the chances of a corrective pullback. On the downside, the psychological level of 1.3000 will be the crucial support for the Pound Sterling bulls.