The Pound Sterling rebounded above 1.3400 as U.S. PCE inflation continued to ease

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22:15 - 27/09/2024

• The Pound Sterling surged back above 1.3400 against the US Dollar following softer US PCE inflation data.

• Investors are now turning their attention to next week’s release of key US labor market data.

• The Bank of England is anticipated to implement a rate cut in the final quarter of the year.

The Pound Sterling (GBP) made a sharp recovery, climbing above the key resistance level of 1.3400 against the US Dollar (USD) during Friday’s North American session. This boost in the GBP/USD pair came after the release of the U.S. Personal Consumption Expenditure (PCE) Price Index data for August, which revealed that inflation grew at a slower-than-expected pace.

Annual headline PCE inflation in the U.S. rose by 2.2%, below the expected 2.3% and down from the previous 2.5%. The core PCE index, the Federal Reserve’s preferred inflation gauge, increased by 2.7% as expected, slightly higher than the prior 2.6%. Both headline and core PCE inflation rose by 0.1% month-over-month.

Despite the slowdown in inflation, it is unlikely to solidify expectations for the Federal Reserve to cut interest rates by another 50 basis points in November. Fed officials were already confident that inflation would gradually return to the 2% target, but their attention has shifted toward emerging risks in the labor market. Last week, the Fed initiated its policy-easing cycle with a significant 50-basis-point cut to 4.75%-5.00%, signaling its readiness to take strong measures to support labor market recovery.

Daily Digest Market Movers: Pound Sterling Resumes Upside Against US Dollar

• The Pound Sterling struggled against most of its major peers on Friday, with the exception of Asia-Pacific currencies. The British currency’s performance remains uncertain due to the lack of high-impact UK economic events.

• There are no major UK economic data releases this week or next, leaving the GBP to be driven by market speculation on the Bank of England’s (BoE) future monetary policy moves.

• Market participants expect the BoE to cut interest rates once during its final two policy meetings this year. In August, the BoE began its policy normalization by reducing rates by 25 basis points to 5%, though it left rates unchanged in its most recent meeting.

• In an interview with the Kent Messenger newspaper on Tuesday, BoE Governor Andrew Bailey stated that “the path for interest rates will be downwards, gradually,” according to Reuters. Bailey expressed confidence in inflation returning to the BoE’s 2% target but clarified that rates would not fall to the historic lows seen during the pandemic.

Technical Analysis: Pound Sterling Climbs Back Above 1.3400

The Pound Sterling has regained ground above the key resistance level of 1.3400 against the US Dollar during North American trading hours. The GBP/USD pair has bounced back, approaching a fresh two-year high above 1.3430. The near-term outlook for the pair remains positive, with the 20-day Exponential Moving Average (EMA) around 1.3235 trending upwards.

Earlier this month, the Cable strengthened after recovering from a corrective move near the trendline established from the December 28, 2023 high of 1.2828, from which it experienced a sharp increase following a breakout on August 21.

The 14-day Relative Strength Index (RSI) is tilting downward but remains above 60.00, indicating continued bullish momentum.

Looking ahead, the Cable will encounter resistance around the psychological level of 1.3500. On the downside, the 20-day EMA at approximately 1.3235 will serve as key support for Pound Sterling bulls.

The Pound Sterling rebounded above 1.3400 as U.S. PCE inflation continued to ease

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