Despite growing speculation of potential Bank of England (BoE) rate cuts, the Pound Sterling (GBP) maintains its strength above the 1.2930 level against the US Dollar (USD) in Monday’s American session. This resilience comes after a recent correction from its annual high of 1.3044, largely due to increased speculation about a Donald Trump victory in the upcoming US presidential elections.
The US Dollar Index (DXY) rose to 104.40 on these speculations but later corrected slightly. This uncertainty, coupled with the expectation of Fed rate cuts from September, has limited the upside potential of the US dollar.
This week, investors will closely watch several US economic data releases, including the preliminary S&P Global PMI for July, Q2 GDP, June’s Durable Goods Orders, and the Personal Consumption Expenditures (PCE) Price Index, to gauge the Fed’s potential actions.
Notably, the Pound Sterling is outperforming its major peers, excluding the Japanese Yen, due to political stability in the UK and minimal exposure to the struggling Chinese economy. Despite a sharp decline in UK retail sales data for June, raising doubts about the BoE’s upcoming decision, the Pound remains firm.
While average earnings have declined as expected, the current pace of wage growth still exceeds what is necessary to curb inflation, potentially influencing the BoE’s decision on rate cuts. Additionally, UK’s new Finance Minister Rachel Reeves’ promise to consider a wage increase for public sector employees later this month adds to the uncertainty surrounding inflation expectations.
Looking ahead, the preliminary S&P Global/CIPS PMI data for July will be a key trigger for the Pound Sterling, with forecasts suggesting expansion in both the manufacturing and composite PMI.
Technically, the GBP/USD pair remains above the 20-day EMA, indicating an intact uptrend. The 14-day RSI suggests a pause in the upward momentum but remains within a bullish range. Key resistance lies at the two-year high near 1.3140, while support is expected at the March 8 high near 1.2900.