Pound Sterling holds onto gains near 1.3100 ahead of flash UK-US PMIs

• The Pound Sterling aims to extend its five-day winning spell against the US Dollar.
• Investors await the August S&P Global PMIs for both the UK and the US.
• The major event this week will be Powell and Bailey’s speeches at Jackson Hole. 

The Pound Sterling (GBP) clings to gains near the round-level resistance of 1.3100 in Thursday’s London session. The GBP/USD pair is expected to move sideways after a five-day winning streak, with investors focusing on the flash August S&P Global Purchasing Managers’ Index (PMI) data for both the United Kingdom (UK) and the United States (US), which will be published at 08:30 GMT and 13:45 GMT, respectively.

The broader outlook of the Cable remains positive as the US Dollar trades on the backfoot, with growing speculation that the Federal Reserve (Fed) will start reducing interest rates from its September meeting. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near 101.00, the lowest level seen this year.

The confidence of investors that the Fed will pivot to policy normalization has increased after the Federal Open Market Committee (FOMC) minutes for the July 30-31 meeting showed that some policymakers suggested cutting borrowing rates already back then. Still,  the “vast majority” of officials said that "if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” according to the minutes.

Meanwhile, a downward revision in Nonfarm Payrolls (NFP) in the year to March 2024 renewed fears of a potential recession and prompted traders to increase bets of a 50-basis-points (bps) interest-rate reduction in September. The US Bureau of Labor Statistics (BLS) reported that the number of total employees hired during the period was 818K lower than previosuly estimated, which prompted expectations of a sizeable interest rate cut.

Now investors shift focus to the Jackson Hole (JH) Symposium, which will begin at 14:00 GMT and last till August 24. The highlight will be Fed Chair Jerome Powell’s speech scheduled on Friday. Investors will look for fresh cues about the potential size of interest rate cuts in September.

Daily digest market movers: Pound Sterling to be guided by flash UK S&P Global/CIPS PMI data

• The Pound Sterling exhibits a mixed performance against its major peers as investors have sidelined ahead of the preliminary UK S&P Global/CIPS data for August. The flash PMI report will hint at the current status of the UK economy. Economists estimate that the Composite PMI improved marginally, to 52.9 from 52.8 a month earlier, led by a sharper expansion of activity in the service sector. Meanwhile, activity in the manufacturing sector is seen growing at a steady pace.
• The flash PMI report could also show a significant improvement in employers’ morale and firm labor demand as a result of the Bank of England (BoE) interest-rate cut in August. This was the first reduction in borrowing costs since December 2021, when it started tightening monetary policy to contain high inflationary pressures bolstered by pandemic-led stimulus.
• This week, the major trigger for the Pound Sterling will be the BoE Governor Andrew Bailey’s speech at the JH Symposium on Friday. Andrew Bailey may guide about whether the BoE will cut interest rates again in September. Also, investors would look for cues over the outlook on wage growth and service inflation.
• According to a Reuters poll, the BoE is expected to deliver one more interest rate cut in November, given that inflation is expected to remain above the bank’s target of 2%. Analysts at Rabobank said in a note: "We're witnessing headline inflation inching towards 2.75%-3.00% by year-end.”

Pound Sterling Price Today:

Technical Analysis: Pound Sterling approaches two-year high of 1.3140

The Pound Sterling posts a fresh year-to-date high at 1.3050 against the US Dollar. The GBP/USD pair moves higher in a Rising Channel chart pattern in which each pullback is considered a buying opportunity by market participants. The upward-sloping 20-day Exponential Moving Average (EMA) near 1.2875 suggests that the near-term 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.