The British pound (GBP) managed to halt a six-day losing streak against the US dollar (USD) on Monday, climbing to approximately 1.3335 during European trading hours. This increase in the GBP/USD pair was fueled by robust UK retail sales and positive early data from the S&P Global Purchasing Managers’ Index (PMI) released on Friday.
The Office for National Statistics (ONS) noted an unexpected increase in retail sales, suggesting a rise of 0.5% month-over-month, despite predictions of a 0.2% decline. Additionally, business activity in the UK private sector expanded more rapidly due to a notable recovery in manufacturing, with the manufacturing PMI rising to 49.6, exceeding the anticipated 46.6. However, it’s worth mentioning that these figures still linger below the critical 50.0 mark, indicating a contraction in factory activity. Overall, the composite PMI, however, climbed to 51.1.
This uptick in consumer spending and business growth may offer some reassurance to the Bank of England (BoE) officials. Yet, the report also highlighted ongoing job cuts in a context where business confidence remains comparatively low, posing a significant concern for policymakers.
Traders became more cautious concerning the central bank’s direction following the release of disappointing employment data for the three months up to August. According to the Labor Market Report, the ILO unemployment rate increased to 4.8%, marking its highest point since mid-2021.
Daily Digest Market Trends: USD declines on Fed’s dovish outlook
- The rebound in the GBP/USD pair was also supported by a slight dip in the US dollar, which fell as speculations grew around the US Federal Reserve’s potential interest rate cuts in its policy announcement on Wednesday.
- As of this writing, the US Dollar Index (DXY)—which gauges the dollar’s strength against six major currencies—was trading 0.1% lower at about 98.80.
- Traders are predominantly expecting a 25 basis points (bp) reduction in interest rates to the range of 3.75-4.00%, based on the CME FedWatch tool. This would mark the second consecutive rate cut by the Federal Reserve.
- In addition, declining inflation in the U.S. is providing the Fed with the flexibility to shift focus toward enhancing job demand. The Consumer Price Index (CPI) data for September, released on Friday, indicated a modest monthly increase in both headline and core inflation of 0.3% and 0.2%, respectively, excluding volatile food and energy costs.
- On a global scale, rising hopes for a trade agreement between the U.S. and China are benefiting the dollar. During Monday’s Asia trade session, U.S. President Donald Trump expressed optimism about reaching a deal after his scheduled meeting with Chinese leader Xi Jinping later this week, stating, “I think we’ll be able to reach an agreement in our meeting with President Xi.”
- Earlier, U.S. Treasury Secretary Scott Bessent suggested that an agreement between the two nations was likely to be reached soon, having met with Chinese Vice Premier He Lifeng at the recent ASEAN summit in Malaysia, over the weekend. He mentioned that the 100% tariff imposed on China would not persist and that the Chinese government’s export limits on rare earth minerals would be delayed.
Technical analysis: Will GBP stabilize or breach the 200-day EMA?
Sterling is facing challenges against the US dollar, lingering near a 12-day low around 1.3310 on Monday. The trend of the GBP/USD pair appears uncertain, oscillating around the 200-day exponential moving average (EMA) near 1.3300.
The 14-day relative strength index (RSI) is hovering close to 40.00. Should the RSI fall below this level, it could trigger new bearish momentum.
On the downside, the low from August 1st at 1.3140 will be a critical support zone, while on the upside, the psychological barrier of 1.3500 will come into play.
