Pound Sterling rises as traders expect BoE to follow gradual policy-easing path

• The Pound Sterling rises as investors expect that the policy-easing cycle of the BoE will be slow and shallow.
• Investors await speeches from BoE MPC members Dhingra and Lombardelli for fresh interest rate guidance.
• The US Dollar weakens following the announcement that Donald Trump has chosen  Scott Bessent as Treasury Secretary. 

The Pound Sterling (GBP) bounces back strongly at the start of the week and outperforms its major peers after facing a sharp sell-off on Friday. The British currency declined on Friday after the United Kingdom (UK) Retail Sales contracted at a faster-than-expected pace in October and the flash S&P Global/CIPS Composite Purchasing Managers’ Index (PMI) for November came in below the 50.0 threshold for the first time since October 2023.

Monthly Retail Sales declined by 0.7% as retailers reported that shoppers held back on spending ahead of the new government's first tax and spending budget on Oct. 30, according to the Office for National Statistics (ONS).

Meanwhile, the Composite PMI fell below the 50.0 level that separates expansion from contraction as activity in the manufacturing sector declined and the service sector output stagnated. “The first survey on the health of the economy after the Budget makes for gloomy reading”, said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. 

The major reason for the recovery in the Pound Sterling appears to be firm market expectations that the Bank of England (BoE) could be one of the central banks from Western nations that will follow a more gradual policy-easing path. Traders expect the BoE to leave interest rates unchanged at 4.75% in the December meeting and prices in 75 basis points (bps) cut to 4% by 2025, Reuters reports.

In Monday’s session, investors will focus on speeches from BoE Deputy Governor Clare Lombardelli and external policy member Swati Dhingra for fresh guidance on interest rates.

Daily digest market movers: Pound Sterling opens strongly against US Dollar

• The Pound Sterling opens strongly against the US Dollar (USD) on Monday, trying to extend its recovery above the round-level resistance of 1.2600. The GBP/USD gains as the US Dollar starts the week on a negative note, with the US Dollar Index (DXY) trading 0.5% down near 107.00.
• 10-year US Treasury yields plummet to near 4.33% as investors digest President-elect Donald Trump picking Scott Bessent as Treasury Secretary to oversee economic and tax policies.  Contrary to market reaction, some analysts seem to be satisfied with the appointment: “There was some level of anxiety priced in that Trump was going to pick someone who was not good or some kind of absolute tariff fanatic, so this is a very good answer for Wall Street,” analysts at Tallbacken Capital Advisors said.
• Bessent said in an interview with the Wall Street Journal (WSJ) that he would focus on putting tariffs into action, cutting spending, and maintaining the status of the Greenback as the world's reserve currency.
• Upbeat flash S&P Global PMI data for November released on Friday showed an improved economic outlook in the United States.  The Composite PMI rose at a faster pace to 55.3, the highest in 31 months, as contraction in the manufacturing sector lost steam and there was a faster-than-expected expansion in the services sector. 
• Traders are divided over the Federal Reserve’s (Fed) action in the December monetary policy meeting. The probability of the Fed cutting interest rates by 25 bps to 4.25%-4.50% in December is at 56%, according to the CME FedWatch tool, while the remaining 44% expects rates to remain unchanged.

Technical Analysis: Pound Sterling recovers from 1.2500

The Pound Sterling rebounds after sliding below the psychological support of 1.2500 against the US Dollar. The GBP/USD pair recovers but market participants could use this rebound to build fresh shorts as the overall trend remains bearish, with 200-day Exponential Moving Average (EMA) trading near 1.2800. 

The 14-day Relative Strength Index (RSI) rebounded after turning oversold but remains inside the 20.00-40.00 range, keeping the downside momentum intact.

Looking down, the pair is expected to find a cushion near May’s low of 1.2446. On the upside, the November 20 high at around 1.2715 will act as key resistance.