- The pound continues to trend higher against the US dollar following strong UK flash PMI data for August.
- The UK’s composite PMI expanded at a strong pace to 53.4.
- The main event this week will be speeches from Chairman Powell and Chairman Bailey in Jackson Hole.
The British Pound (GBP) surged to nearly 1.3130 against the US Dollar (USD) during the London trading session on Thursday. The GBP/USD pair continued to rise for a sixth trading session on Thursday after the United Kingdom’s (UK) flash S&P Global/CIPS Purchasing Managers’ Index (PMI) for August showed overall economic activity expanding at a faster pace than expected. The composite PMI came in at 53.4, beating the 52.9 forecast and the previous 52.8, due to strong expansion in manufacturing and service sector activity.
Commenting on the preliminary PMI data, Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Preliminary PMI survey data indicates that August saw a welcome combination of accelerating economic growth, improving job creation and lower inflation. Both the manufacturing and services sectors reported solid output growth and employment gains, and business confidence remains high by historical standards.”
Strong preliminary UK PMI data helped ease market expectations of a September interest rate cut by the Bank of England (BoE), which emerged after a sharp decline in services sector inflation pressures in July, improving the outlook for the British currency.
The Bank of England is expected to cut interest rates one more time in November as inflation is expected to remain above the bank’s 2% target, according to a Reuters poll. “Headline inflation is gradually approaching 2.75%-3.00% by the end of the year,” Rabobank analysts said in a note.
The big trigger for the pound this week will likely be a speech from Bank of England Governor Andrew Bailey at the JH Symposium on Friday, when he may provide guidance on whether the bank will cut interest rates again in September. Investors will also be looking for clues on the outlook for wage growth and services inflation.
Daily Digest Market Trends: British pound continues to rise for sixth trading session
- The British pound is outperforming the U.S. dollar as it trades weaker amid growing speculation that the Federal Reserve will begin cutting interest rates from its September meeting. The U.S. Dollar Index (DXY), which measures the greenback’s value against six major currencies, is hovering near 101.00, its lowest level this year.
- Investors’ confidence that the Fed would reverse course to normalize policy increased after minutes of the July 30-31 Federal Open Market Committee meeting revealed that some policymakers had already signaled at the time that they were considering lowering borrowing rates. Still, the minutes showed that a “majority” of officials said that “if data continue to be released approximately as expected, it will likely be appropriate to ease policy at our next meeting.”
- Meanwhile, a downward revision of nonfarm payrolls (NFP) for the year ending March 2024 rekindled fears of a possible recession, leading traders to strengthen their view of a 50 basis points (bps) rate cut in September. The U.S. Bureau of Labor Statistics (BLS) reported that the total number of employees employed during the period was 818,000 fewer than previously estimated, raising hopes of a significant rate cut.
- Investor attention now turns to the Jackson Hole (JH) Symposium, which begins at 14:00 GMT and runs through August 24. The highlight is a speech from Federal Reserve Chairman Jerome Powell scheduled for Friday, as investors hope for new clues on the size of the interest rate cut in September.
- In Thursday’s session, investors will be focusing on preliminary US S&P Global PMI data for August, due to be released at 13:45 GMT.
Technical analysis: Pound revisits two-year high of 1.3140
The British Pound Sterling hit a yearly high of 1.3050 against the US Dollar. The GBP/USD pair is rising in an ascending channel chart pattern with market participants viewing each pullback as a buying opportunity. The 20-day exponential moving average (EMA) around 1.2875 is sloping up, suggesting that the short-term trend is bullish.
The 14-period Relative Strength Index (RSI) is fluctuating within a bullish range of 60.00 to 80.00, suggesting a strong uptrend. However, it has reached overbought levels around 70.00, increasing the chances of a corrective pullback. On the upside, the two-year high of 1.3140 will act as a key resistance zone for GBP bulls.
