- The Pound Sterling is trading within a narrow range around 1.3400 against the US Dollar as investors look forward to crucial US economic data.
- Economists predict that US manufacturing activity will show another contraction in September.
- Bank of England Monetary Policy Committee member Megan Greene stated that inflation could increase again due to a significant rebound in consumption.
The Pound Sterling (GBP) is consolidating within a narrow range near the key resistance level of 1.3400 against the US Dollar (USD) during Tuesday’s London session. The GBP/USD pair is struggling to find direction as investors await important US labor market data that will offer insights into how much the Federal Reserve (Fed) may further reduce interest rates this year.
The Fed initiated its policy-easing cycle with a 50 basis point cut, lowering the rate to 4.75%-5.00% on September 18. This larger-than-usual cut reflects growing concerns about slowing job growth and increased confidence that inflation may return to the Fed’s target of 2%.
To gauge the current health of the labor market, investors are closely monitoring the US ADP Employment Change and Nonfarm Payrolls (NFP) data for September, set to be released on Wednesday and Friday, respectively.
On Monday, Fed Chair Jerome Powell tempered market expectations for an aggressive rate-cut cycle, stating, “This is not a committee that feels like it is in a hurry to cut rates quickly.” He added, “If the economy evolves as expected, that would be two more cuts by year’s end, totaling a half-percentage point reduction.”
In today’s session, attention will turn to the US JOLTS Job Openings data for August and the ISM Manufacturing PMI data for September, both scheduled for release at 14:00 GMT. Economists anticipate that job openings remained relatively steady in August, around 7.67 million, compared to July.
Meanwhile, the ISM Manufacturing PMI is projected to improve slightly to 47.5 from 47.2, still indicating a contraction in factory sector activity.
Daily Digest: Market Movers
- The Pound Sterling is outperforming its major peers on Tuesday, bolstered by easing market expectations for a Bank of England (BoE) interest rate cut in November following a speech by BoE external policy member Megan Greene at the National Association for Business Economics conference.
- Greene, who voted to keep interest rates unchanged in the last two policy meetings, suggested that the UK’s consumption-driven recovery could reignite price pressures. She cautioned that the recent drop in oil prices is only a temporary factor in bringing headline inflation back to the bank’s target of 2%. Additionally, Greene highlighted that inflation in the service sector, currently at 5.6%, is “worrisome.” Nonetheless, she expressed confidence that prices are “moving in the right direction,” according to Bloomberg.
- Market participants expect the BoE to implement one more interest rate cut in the last quarter of the year, likely during the December meeting. The BoE began its policy normalization with a 25 basis point cut on August 1 but opted to keep borrowing rates unchanged on September 19.
- Looking ahead, the next significant trigger for the Pound Sterling will be the speech by BoE Chief Economist Huw Pill, scheduled for 14:00 GMT, which could offer further guidance on the interest rate outlook for the remainder of the year.
- On the economic front, investors will also be watching for the revised S&P Global/CIPS Manufacturing PMI data for September, expected to be published at 08:30 GMT, with an estimate of 51.5, unchanged from the flash estimate.
Technical Analysis: Pound Sterling Moves Sideways Near 1.3400
The Pound Sterling is trading sideways near the key resistance level of 1.3400 against the US Dollar during European trading hours. The near-term outlook for the GBP/USD pair remains positive, with the 20-day Exponential Moving Average (EMA) around 1.3250 trending upwards.
The Cable is expected to maintain its strength as it holds above the trendline established from the December 28, 2023 high of 1.2828, which was broken on August 21.
The 14-day Relative Strength Index (RSI) is slightly declining but remains above 60.00, indicating sustained bullish momentum.
On the upside, the Cable will encounter resistance around the psychological level of 1.3500. Conversely, the key support for Pound Sterling bulls is located at the 20-day EMA near 1.3235.
