Daily Market Update: Pound Sterling’s Slight Rebound
- Pound Sterling (GBP) is likely to gain a marginal advantage against other currencies at the start of the week.
- Given the UK’s ongoing fiscal concerns, UK government bond yields surged to around 5.56% for 30-year bonds.
- Market watchers are keenly anticipating the preliminary PMI data for the US and UK set to be released on Tuesday.
At the beginning of the week, GBP is recovering to nearly 1.3500 against the US dollar (USD) after hitting a two-week low. This rebound follows a three-day rally as the dollar shows some weakness.
Currently, the US Dollar Index (DXY) dipped from a peak of 97.80 earlier, indicating a retreat in the dollar’s value compared to other major currencies.
Over the past few days, the US dollar performed strongly, especially after the Federal Reserve hinted at interest rate reductions last Wednesday. Although such cuts are usually seen as negative for the dollar, market expectations had largely factored them in already.
In their meeting, the Fed opted for a 25 basis point cut, bringing rates to a range of 4.00%-4.25%, which indicates the potential for more reductions this year given the labor market situation.
Looking ahead, investors will tune into Fed Chairman Jerome Powell’s speech on Tuesday at a local economic event, hoping to gain insights into future monetary policy.
Also, on Tuesday, attention will shift to the US S&P Global PMI data, which is projected to reflect steady growth at around 54.6.
In a related note, various Federal Open Market Committee (FOMC) members, including recently appointed President Stephen Milan, will be speaking on Monday, drawing market interest.
Market Overview: Concerns Persist Amid Fiscal Issues
- The pound starts the week on a slightly positive note, reeling from intense selling pressure faced last week, yet remains vulnerable due to ongoing UK financial worries.
- Recent figures showed that the UK’s public sector net borrowing for August reached about £18 billion, much higher than the anticipated £12.5 billion.
- Increased borrowing concerns led to heightened yields on UK government bonds, which are now close to 5.57%. This may hinder any plans for increased spending in the upcoming fall budget.
- Additionally, there are worries that Prime Minister Rachel Reeves might introduce new taxes to balance the announced increase in public spending.
- As for economic indicators, the upcoming UK S&P Global PMI data is expected to show a slight dip in service sector activity, forecasting a reading of 53.6, down from last month’s 54.2.
- On Monday, all eyes will be on Bank of England Governor Andrew Bailey’s speech.
Technical Outlook: GBP/USD Short-Term Trend
Pound Sterling is set to recover to around 1.3500 against the US dollar. However, the short-term outlook for the GBP/USD pair appears bearish as it trades below the 20-day exponential moving average (EMA) of about 1.3524.
The currency is hovering near the lower boundary of an ascending channel formation at approximately 1.3470. Moreover, the 14-day Relative Strength Index (RSI) has dropped significantly below the neutral level of 50, indicating potential bearish momentum if it drops below 40.
Key support is found at the previous low of 1.3140, while resistance lies near the peak of 1.3800 from July.
