Pound Sterling holds strength as Fed rate-cut bets swell, UK inflation in focus

• The Pound Sterling rises to near 1.3000 against the US Dollar as the Fed looks set to start reducing interest rates in September.
• Hot US PPI report fails to diminish Fed rate cut bets.
• Investors await the UK inflation and employment data for fresh guidance on BoE interest rates.

The Pound Sterling (GBP) clings to gains slightly below the psychological resistance of 1.3000 against the US Dollar (USD) in Monday’s London session. The GBP/USD pair remains firm amid swelling expectations that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.

Investors’ confidence in the possibility of the Fed reducing interest rates in September remains firm even though the United States (US) Producer Price Index (PPI) data for June, released on Friday, grew at a faster pace than expected. Both headline and core producer inflation were higher than expected on a monthly as well as an annual basis due to a significant increase in the cost of services.

Market speculation for Fed rate cuts rose significantly on Thursday after the US Consumer Price Index (CPI) report for June indicated that the disinflation process has resumed after halting in the first quarter of this year. Inflationary pressures decelerated on headline as well as the core front. The probability of the Fed cutting its key interest rates also grew because of visible cracks in the labor market.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gains ground near 104.00. The USD Index finds cushion as investors rush to safe-haven after an assassination attempt on former US President Donald Trump in Pennsylvania. The situation has resulted in increased odds of Trump winning the US Presidential elections this year.

However, the near-term appeal of the US Dollar remains bearish as investors see the Fed lowering borrowing rates in September as a done deal. This week, investors will keenly focus on the US monthly Retail Sales data for June, which will be published on Tuesday. Economists have estimated that Retail Sales remained unchanged after a meager growth of 0.1% in May.

Daily digest market movers: Pound Sterling strengthens ahead of UK inflation and employment data

• The Pound Sterling gains against its major peers on Monday. The British currency strengthens as investors see the United Kingdom (UK) markets as a better spot for investments. Unlike the European Union and the US economy battling political uncertainty, the outright victory of Keir Starmer’s Labour Party has assured stable fiscal policies and smooth ministry distribution.
• Apart from that, deepening uncertainty over the timeframe for Bank of England (BoE) rate cuts has been a major catalyst to Sterling’s strength. Currently, financial markets expect the BoE to begin lowering interest rates from the August meeting. On the contrary, BoE policymakers hesitate to favor rate cuts in August as they worry about high inflation in the service sector due to strong wage growth. The pace at which wages are growing is roughly double than what is needed to restore price stability. 
• This week, the uncertainty over the BoE rate-cut timeframe will wane to some extent as the UK Office for National Statistics (ONS) will publish the inflation and employment data on Wednesday and Thursday, respectively. The core CPI, which excludes volatile food and energy prices, is expected to have decelerated to 3.4% from May’s reading of 3.5%. Annual Average Earnings Including Bonus for the three months ending in May are estimated to have softened to 5.7% from the former release of 5.9%.

Pound Sterling Price Today:

Technical Analysis: Pound Sterling refreshes annual high at 1.3000

The Pound Sterling posted a fresh annual high at 1.3000 against the US Dollar on Friday. The near-term appeal of the GBP/USD pair has strengthened after a breakout above the March 8 high near 1.2900. The Cable is expected to extend its upside towards a two-year high near 1.3140. 

All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong bullish trend.

The 14-day Relative Strength Index (RSI) jumps to nearly 70.00 for the first time in more than a year, indicating a strong momentum towards the upside.