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The Pound Sterling remains firm around 1.3530 against the US Dollar as Fed Chair Powell signals support for potential rate cuts.
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At the Jackson Hole Symposium, Powell highlighted emerging downside risks in the U.S. labor market.
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Bank of England Governor Andrew Bailey points to significant challenges in the UK economy stemming from low labor force participation.
The Pound Sterling (GBP) holds steady near 1.3530 against the US Dollar (USD) during Monday’s European session, extending Friday’s gains. The GBP/USD pair remains supported following dovish signals from Federal Reserve (Fed) Chair Jerome Powell during his speech at the Jackson Hole Symposium.
Markets had expected Powell to maintain a “wait and see” stance on interest rates. Instead, his unexpectedly dovish tone boosted investor risk appetite, weighing on the US Dollar and Treasury yields.
At the time of writing, the US Dollar Index (DXY)—which measures the Greenback’s value against six major currencies—hovers near a four-week low around 97.60. Meanwhile, the yield on 10-year US Treasury bonds trades near 4.27%, in line with Friday’s levels.
Quiet UK Session as Pound Sterling Gains on Dovish Fed Tone
- With UK markets closed for the Summer Bank Holiday, Sterling is expected to see subdued trading volumes. Still, it continues to benefit from the shift in global sentiment following Powell’s remarks.
- Powell noted that “policy is in restrictive territory” and that “the shifting balance of risks may warrant adjusting our policy stance.” He highlighted growing risks to the labor market, warning that such risks could materialize quickly if left unchecked.
- His comments diverged from market expectations, which had anticipated reaffirmation of a higher-for-longer interest rate stance—especially amid inflation concerns tied to tariffs. However, Powell downplayed these concerns, stating: “It’s possible that tariff-driven upward pressure on prices could spur a lasting inflation dynamic, but unlikely, given the downside risks to the labor market.”
- As a result, investors are now increasingly confident the Fed will deliver a 25 basis-point rate cut in September, according to the CME FedWatch Tool. Market participants will closely monitor the July US Personal Consumption Expenditure (PCE) Price Index—due Friday—for further insight into inflation trends.
- Bank of England (BoE) Governor Andrew Bailey also spoke at the Jackson Hole Symposium. He pointed to significant structural issues in the UK economy, particularly the persistent decline in labor force participation following the COVID-19 pandemic.
- Bailey cautioned that these labor challenges—driven by long-term demographic trends—are likely to persist. “Aging is not going to turn around in the foreseeable future,” he said, underscoring the drag on productivity and growth.
Technical Outlook: GBP/USD Forms Bullish Reversal Pattern
Technically, GBP/USD is trading firmly above the 1.3500 level, signaling renewed bullish momentum. The pair has moved above the 20-day Exponential Moving Average (EMA), currently around 1.3466, indicating strengthening short-term price action.
Notably, the pair is forming an inverse Head and Shoulders (H&S) pattern—a classic signal of a potential bullish reversal following a corrective phase. The neckline of this pattern lies near 1.3580. A confirmed breakout above this level would likely accelerate upward momentum.
The 14-day Relative Strength Index (RSI) is currently fluctuating between 40 and 60, indicating a period of volatility contraction that could precede a breakout.
On the downside, support is seen at the August 11 low of 1.3400. To the upside, the July 1 high around 1.3790 remains a key resistance level to watch.
