The Pound Sterling (GBP) staged a strong recovery on Tuesday, bouncing back from a recent dip to 1.2620 against the US Dollar (USD). This rebound came as the US Dollar surrendered some of its gains, despite growing anticipation for Federal Reserve (Fed) Chair Jerome Powell’s upcoming speech and Friday’s Nonfarm Payrolls (NFP) data release.
Market Drivers: Fed Rate Cut Expectations and UK Political Landscape
- Market Anticipation of Fed Rate Cuts: The recent decline in US inflation has fueled expectations of the Fed initiating rate cuts as early as September. This divergence in monetary policy between the Fed and the Bank of England (BoE) is contributing to the GBP’s strength.
- UK Election Jitters: While the UK’s headline inflation has returned to the BoE’s target, concerns about persistent service sector inflation are keeping the central bank cautious about rate cuts. Additionally, the upcoming UK elections are adding to the uncertainty surrounding the Pound’s future trajectory.
Economic Data and Central Bank Commentary in Focus
- US Retail Sales Data: The softer-than-expected US retail sales data for May further strengthened the case for Fed rate cuts, putting downward pressure on the US Dollar.
- Fed Chair Powell’s Speech: Investors are eagerly awaiting Powell’s speech for insights into the Fed’s policy outlook and potential timeline for rate cuts.
- US JOLTS Job Openings: The release of May’s JOLTS data will shed light on the state of the US labor market, a crucial factor in the Fed’s decision-making process.
Technical Analysis: GBP/USD Recovers, But Uptrend Uncertain
The GBP/USD pair rebounded strongly, but it faces resistance at the 61.8% Fibonacci retracement level and the 20-day and 50-day EMAs. The 14-day Relative Strength Index (RSI) remains neutral, indicating indecision among market participants.
Key Takeaways:
- The Pound Sterling is rallying on expectations of Fed rate cuts and a weakening US Dollar.
- Upcoming UK elections and the Fed’s policy decisions remain crucial factors influencing the GBP’s outlook.
- Technical analysis reveals a potential for further upside in the GBP/USD pair, but the near-term trend remains uncertain.