- The pound is experiencing downward pressure against other currencies due to moderate growth indicated in preliminary UK PMI data for July.
- There are hopeful signs for increased demand for risk-sensitive assets thanks to the US-EU trade agreement discussions.
- The Federal Reserve is expected to maintain current interest rates in its upcoming meeting.
The British Pound (GBP) is likely to drop against major peers on Thursday. This comes after the initial UK S&P Purchasing Manager’s Index (PMI) report for July showed that business activity is expanding, but at a slower rate than anticipated. The combined PMI stands at 51.0, a dip from June’s figures of 51.9 and 52.0, indicating a more moderate growth.
In particular, the service sector’s activity was surprisingly sluggish, with the service PMI decreasing to 51.2 from an expected rise to 53.0, compared to June’s 52.8. Meanwhile, the manufacturing sector continues to shrink due to uncertainties surrounding global trade and policy shifts announced by Prime Minister Rachel Reeves in last fall’s budget. Manufacturing contracted, albeit at a slower rate of 48.2 compared to estimates of 48.0 and last month’s 47.7.
In that previous budget, Prime Minister Reeves announced increased contributions to the Social Security scheme, which has led private companies to hold back on hiring to manage the added costs. Notably, the PMI report shows that staffing levels are declining at the fastest rate since February.
As the North American trading session unfolds, attention is shifting to July’s Flash US S&P Global PMI data, which is expected to reveal an uptick in overall business activity.
Daily Digest Market Mover: Pound Sterling’s Shift Against the US Dollar
- The Pound Sterling is set to readjust to 1.3540 against the US Dollar (USD) during the European session, coming down from earlier two-week highs around 1.3580 following the preliminary UK PMI report.
- Additionally, a slight rebound in the US dollar is putting further pressure on the GBP/USD pair. The greenback is gaining some traction, attempting to end a four-day losing streak. The US Dollar Index (DXY), which measures the dollar’s performance against six major currencies, is finding temporary support near 97.00, rising back to approximately 97.40.
- The US has faced some performance setbacks as discussions between the US and EU about a possible trade agreement gain momentum ahead of the August 1 tariff deadline. A successful agreement could alleviate concerns over potential disruptions in global trade.
- Investor confidence is bolstered by reports suggesting that the US and EU could finalize agreements akin to recently announced tariff arrangements between the US and Japan, which would lower tariffs to 15%.
- There’s also a sense of urgency among EU officials to finalize agreements, aiming to avert detrimental trade wars, especially since Japan and the EU export considerable numbers of vehicles to the US. Lower tariffs from Japan might give Japanese automakers a competitive edge.
- On the domestic front, the next focal point for the US dollar will be the Federal Reserve’s monetary policy announcement. Current predictions suggest the Fed will maintain interest rates within the 4.25% to 4.50% range. Investors will be attentive to comments from Fed Chairman Jerome Powell regarding monetary policy, particularly amid concerns that tariffs implemented by President Trump could drive inflation.
Technical Analysis: Pound Sterling Faces Pressure Below 20-Day EMA
The pound was unable to sustain initial gains against the US dollar on Thursday, dropping from around 1.3580. The short-term trajectory for the GBP/USD pair is somewhat unclear as it struggles to break above the 20-day exponential moving average (EMA) near 1.3526.
The 14-day relative strength index (RSI) is back above 50.00, hinting at strong buying interest at lower levels.
To the downside, the low from May 12 at 1.3140 will act as a key support level. Conversely, the peak from July 1 around 1.3790 will pose a significant resistance barrier.
