Pound Sterling climbs modestly despite renewed concerns over the UK’s fiscal outlook

The Pound Sterling (GBP) edged higher against most major currencies on Wednesday, with the exception of the antipodeans. The British currency found support despite renewed fiscal concerns in the UK, following the latest borrowing figures released by the Office for National Statistics (ONS) on Tuesday.

According to the report, the UK government posted its second-highest June borrowing total since 1993, driven by rising debt servicing costs linked to elevated inflation. The increase in borrowing raises the likelihood of potential tax hikes in the upcoming Autumn Statement.

Market participants are now looking ahead to Thursday’s release of preliminary S&P Global Purchasing Managers’ Index (PMI) data for July. The figures will be closely watched to assess whether the UK private sector’s hiring slowdown persists, as firms continue to manage rising social security costs by limiting recruitment.

Economists expect the Composite PMI to ease slightly to 51.9 in July from 52.0 in June, indicating that while business activity remains in expansion territory, growth momentum is moderating.

On the monetary policy front, expectations for an interest rate cut by the Bank of England (BoE) in August are gaining traction. Major financial institutions including Bank of America (BofA) Global Research, Citigroup, Morgan Stanley, and Goldman Sachs are forecasting a 25 basis point rate cut at the upcoming policy meeting.

Daily Digest Market Movers: Pound Sterling Edges Higher Despite Renewed UK Fiscal Risks

• The Pound Sterling (GBP) holds firm near 1.3540 against the US Dollar (USD) during the European session on Wednesday. The GBP/USD pair remains supported as the US Dollar struggles for direction, even after Washington confirmed a trade agreement with Japan — one of its major trading partners.
• The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, hovers around 97.45, just above Tuesday’s two-week low of 97.30.
• US President Donald Trump announced via Truth.Social on Tuesday that a trade deal with Japan has been finalized. Under the agreement, the US will impose 15% tariffs on Japanese imports. In return, Japan will open its economy further to American businesses and commit to investing $550 billion in the US.
• “Japan will open their country to trade, including cars and trucks, rice, certain agricultural products, and more. Japan will pay reciprocal tariffs to the United States of 15%,” Trump stated. Additionally, the US sealed a bilateral trade deal with the Philippines on the same day.
• The timing of the US-Japan agreement is notable, as Japan currently faces political uncertainty following Prime Minister Shigeru Ishiba's announcement that he will step down by the end of August.
• Looking ahead, investors await Thursday’s release of preliminary US PMI data for July. The flash report is expected to show improved growth across both the manufacturing and services sectors.
• Meanwhile, market expectations for a Federal Reserve (Fed) rate cut in September have started to fade. Analysts believe the inflationary effects of President Trump’s tariffs are beginning to show in consumer prices.
• According to the CME FedWatch Tool, the probability of a rate cut at the September meeting has declined to 58.7%, down from 69.6% a month ago.

Technical Analysis: Pound Sterling Reclaims Ground Above 1.3500

The GBP/USD pair is trading just above Tuesday’s high, with the Pound attempting to sustain levels above the 20-day Exponential Moving Average (EMA), currently near 1.3520. A successful hold above this level could confirm a bullish near-term trend.

The 14-day Relative Strength Index (RSI) has rebounded toward the neutral 50 mark, signaling investor indecision but also emerging buying interest at lower levels.

On the downside, support is seen at the May 12 low of 1.3140. To the upside, the July 1 high around 1.3790 serves as a key resistance barrier.