Daily Market Update: Pound Sterling Gains Momentum
- Pound Sterling (GBP) surpasses 1.3600 against the US dollar, buoyed by a ceasefire between Israel and Iran that has dampened demand for safe-haven assets.
- Positive UK Flash PMI data for June has further strengthened the pound.
- Several Federal Reserve officials have indicated support for interest rate cuts in July to boost the US labor market.
The GBP is expected to climb to about 1.3630 during European trading on Tuesday, following its rise on Monday. This is largely due to a broader rally in risk assets sparked by the ceasefire, which reduced the demand for the US dollar as a safe option.
The US Dollar Index (DXY), which measures the dollar’s strength against a basket of six major currencies, has fallen sharply from a two-week high of around 99.40 to about 98.13.
In a recent development, Iranian state media announced a ceasefire with Israel, stating, “a ceasefire has been implemented following four rounds of Iranian attacks on Israel.” This confirmation from Iran came after a tweet from US President Donald Trump, who urged both Middle Eastern nations to respect the ceasefire.
By late Monday, Trump had declared that both parties had agreed to a “complete and total ceasefire.”
The reduction in tensions has led to a significant decrease in oil prices—down nearly 15% from recent peaks—offering relief to oil-importing countries.
Market Movement: Pound Sterling Leads
- The pound has outperformed almost all of its major counterparts as of Tuesday, spurred on by favorable PMI data released for June.
- The PMI report indicated that business activity is growing faster than anticipated. While service sector activities are consistent, production has slowed, albeit not as much as expected. Notably, after a lengthy period of decline, new business volumes are on the rise.
- Last week, the Bank of England held interest rates steady at 4.25%, while also cautioning of rising energy costs impacting the labor market.
- Megan Greene from the BOE Monetary Policy Committee stated that a careful approach to adjusting monetary policy is still necessary, pointing out inflationary risks ahead.
- Investors are now looking forward to hearing from BOE Governor Andrew Bailey in his upcoming testimony, which may offer insights into future monetary policy.
- In the US, the Flash PMI data indicated stronger-than-expected performance. The service sector PMI measured at 53.1, surpassing the forecast of 52.9, while manufacturing remained stable at 52.0.
- On the monetary policy side, Fed officials’ shifting stance on potential interest rate cuts has led to decreased bond yields and a weakened dollar.
- Fed Governor Michelle Bowman remarked on signs of a softening labor market, and Governor Christopher Waller suggested that the Fed shouldn’t wait for job market failures to lower rates.
Technical Analysis: Pound Sterling’s Stability
The pound is aiming to reclaim its three-year high of 1.3630 reached on June 13. The short-term outlook for the GBP/USD pair appears bullish as it remains above 1.3500 and the 20-day exponential moving average.
The 14-day relative strength index (RSI) nears 60.00, indicating potential for renewed bullish momentum if surpassed.
Conversely, an important support level to watch is around 1.3250, while barriers lie near 1.3750, associated with highs from January 2022.
(This update was revised at 08:42 GMT to clarify the upcoming testimony related to Andrew Bailey.)
