Pound Sterling gives up intraday gains as flash US PMI beats estimates

• The Pound Sterling struggles to hold its winning spell against the US Dollar after upbeat US flash PMI for August
• UK Composite PMI expanded at a robust pace to 53.4, beating estimates and the former release.
• The major event this week will be Powell and Bailey’s speeches at Jackson Hole. 

The Pound Sterling (GBP) surrenders its entire intraday gains and dips below 1.3100 against the US Dollar (USD) in Thursday’s early New York session. The GBP/USD pair struggles to extend its winning streak to a sixth trading session on Thursday as the flash United States (US) S&P Global Composite PMI data for August came in better-than-expected.

Overall business activity rose at a faster-than-expected pace to 54.1 but remained lower 54.3 came in July, driven by upbeat demand in the service sector. While the Manufacturing PMI declined sharply to 48.0. Economists already anticipated activities in manufacturing activities to contract but at a steady pace to 49.6. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to 101.60 from 101.00, the lowest level seen this year.

However, the US Dollar’s outlook remains uncertain amid growing speculation that the Federal Reserve (Fed) will start reducing interest rates from its September meeting. The confidence of investors that the Fed will pivot to policy normalization has increased after the Federal Open Market Committee (FOMC) minutes for the July 30-31 meeting showed that some policymakers suggested cutting borrowing rates already back then. Still,  the “vast majority” of officials said that “if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” according to the minutes.

Meanwhile, a downward revision in Nonfarm Payrolls (NFP) in the year to March 2024 renewed fears of a potential recession and prompted traders to increase bets of a 50-basis-points (bps) interest-rate reduction in September. The US Bureau of Labor Statistics (BLS) reported that the number of total employees hired during the period was 818K lower than previously estimated, which prompted expectations of a sizeable interest rate cut.

Now investors shift focus to the Jackson Hole (JH) Symposium, which will begin at 14:00 GMT and last till August 24. The highlight will be Fed Chair Jerome Powell’s speech scheduled on Friday. Investors will look for fresh cues about the potential size of interest rate cuts in September.

Daily digest market movers: Pound Sterling to be guided by BoE Bailey and Fed Powell’s speeches at Jackson Hole event

• The Pound Sterling outperforms its major peers on Thursday. The British currency strengthens as the flash United Kingdom (UK) August S&P Global/CIPS Purchasing Managers’ Index (PMI) report showed that overall economic activities expanded at a faster-than-expected pace. The Composite PMI came in higher at 53.4 than expectations of 52.9 and the prior release of 52.8 on a robust expansion in activities in manufacturing as well as the service sector. Upbeat PMI data has prompted a sharp recovery in the US Dollar.
• Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, “August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data.” Williamson added, “Both manufacturing and service sectors are reporting solid output growth and increased job gains as business confidence remains elevated by historical standards.”
• Upbeat flash UK PMI data has improved the British currency’s outlook as it would weigh on market expectations of Bank of England’s (BoE) interest rate cuts in September, which came into the picture after a sharp decline in inflationary pressures in the service sector in July.
• According to a Reuters poll, the BoE is expected to deliver one more interest rate cut in November, given that inflation is expected to remain above the bank’s target of 2%. Analysts at Rabobank said in a note: “We’re witnessing headline inflation inching towards 2.75%-3.00% by year-end.”
• This week, the major trigger for the Pound Sterling will be the BoE Governor Andrew Bailey’s speech at the JH Symposium on Friday. Andrew Bailey may guide about whether the BoE will cut interest rates again in September. Also, investors would look for cues over the outlook on wage growth and service inflation.

Pound Sterling Price Today:

Technical Analysis: Pound Sterling struggles to continue winning streak

The Pound Sterling posts a fresh year-to-date high at 1.3050 against the US Dollar. The GBP/USD pair moves higher in a Rising Channel chart pattern in which each pullback is considered a buying opportunity by market participants. The upward-sloping 20-day Exponential Moving Average (EMA) near 1.2875 suggests that the near-term trend is bullish.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. Still, it has reached overbought levels at around 70.00, increasing the chances of a corrective pullback. On the upside, a two-year high at 1.3140 will be the key resistance zone for the Pound Sterling bulls.