Pound Sterling fluctuates against US Dollar as Fed and BoE monetary policy week begins

• This week, the pound is trading around 1.3580 against the US dollar, as the markets await announcements from both the Federal Reserve and the Bank of England regarding monetary policy.
• There’s an expectation among investors that both central banks will choose to keep interest rates steady.
• Additionally, rising tensions between Israel and Iran are keeping investors alert.

Pound Sterling (GBP) is likely to remain within this week’s trading range, hovering around 1.3590 against the US Dollar (USD). Traders seem to be cautious ahead of the monetary policy decisions expected from the Federal Reserve (FED) and the Bank of England (BOE) on Wednesday and Thursday, respectively.

At the start of the week, the US Dollar Index (DXY), which measures the dollar against six major currencies, dipped to nearly 98.00.

Investors are keenly watching for guidance on interest rates from both central banks, though it’s generally expected that there will be no changes at this time.

Officials from the Fed have indicated that interest rates need to remain in the 4.25%-4.50% range until there is more clarity on how current economic policies from the Biden administration will impact inflation and growth. They’re cautious, warning that such policies could drive inflation higher.

Investors will need to pay attention to the Fed’s dot plot, which outlines where policymakers expect interest rates to move in both the near and distant future.

Daily Digest Market Movement: Pound Sterling Remains Stable Against Major Peers

• This Monday, the pound has shown relative stability against its main counterparts as investors await the BOE’s interest rate decision. The UK central bank is anticipated to hold its borrowing rate steady at 4.25% as it takes a “slow and cautious” approach following a 25 basis point rate cut in May.
• Market participants are questioning if the BOE will maintain its “gradual and prudent” policy, particularly as recent employment data suggests possible weaknesses in job growth.
• Business owners in the UK are slowing down hiring to mitigate increased contributions to the social security system, which went into effect in April. Prime Minister Rachel Reeves announced the rise in national insurance contributions from 13.8% to 15% in a recent UK budget statement.
• As the BOE meeting approaches, investors will also be looking for updates from the UK Consumer Price Index (CPI) data for May, expected to be released on Wednesday, which is likely to indicate moderate price pressures.
• On a grander scale, tensions in the Middle East are becoming a concern that may curtail investor interest in riskier assets such as the pound. Israeli Defense Minister Israel Katz has warned of an escalation against Iran if missile attacks from Iran continue. “Tehran will burn if it continues to attack Israel,” he stated. Meanwhile, Iran has threatened to disrupt the Strait of Hormuz, a key oil transport route.
• During European trading hours, Israeli military representatives claimed to have destroyed over a third of Iran’s missile launchers targeted at surface locations.

Technical Analysis: Pound Sterling Struggles Below 1.3600

The pound’s sterling is currently wavering below 1.3600 against the US dollar on Monday. The short-term outlook for the GBP/USD pair appears bullish, supported by the 20-day exponential moving average (EMA) near 1.3500.

The 14-day relative strength index (RSI) is having difficulty breaking above 60.00; crossing this threshold could bring a new wave of bullish momentum.

One key resistance level for this pair is the peak of 1.3750 reached on January 13, 2022. On the downside, a support zone is formed from the high of 1.3434 recorded on September 26th.

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