In Tuesday’s London session, the Pound Sterling (GBP) maintains a narrow trading range, hovering near a six-week low around 1.2540 against the US Dollar (USD). The subdued performance of the GBP/USD pair is primarily attributed to weak market sentiment, contributing to a downbeat near-term outlook.
Traders’ sentiments have shifted as expectations for the Federal Reserve’s (Fed) first rate cut, initially anticipated in the June meeting, have been pushed back. This adjustment follows a robust recovery observed in the United States manufacturing sector, indicative of a strong economic outlook. The prospect of prolonged higher interest rates in the US market favors the US Dollar, exerting downward pressure on the GBP/USD pair.
The optimism surrounding the US economy, coupled with a safe-haven bid, propels the US Dollar Index (DXY) to a fresh four-month high, surpassing 105.00. Conversely, the Pound Sterling faces headwinds, compounded by slowing inflation in the United Kingdom and a gloomy market mood.
On Tuesday, the British Retail Consortium (BRC) reported that shop price inflation in the UK expanded by 1.3% in March, marking its slowest pace in over two years. This deceleration, attributed to softer prices of both food and non-food items, underscores the challenges faced by the Pound Sterling. While lower shop price inflation may offer relief to Bank of England policymakers, escalating cost pressures pose risks to inflation containment efforts.
Looking ahead, investors await key economic data releases, including the S&P Global/CIPS Manufacturing PMI final data for March and the US JOLTS Job Openings data for February. Market sentiment remains subdued amidst tempered expectations for a Fed rate cut, following stronger-than-expected manufacturing data from the United States Institute of Supply Management (ISM) for March.
Technical analysis indicates a downward trajectory for the Pound Sterling, with the currency approaching the 200-day Exponential Moving Average (EMA) at 1.2568. Further support is anticipated near the horizontal support level of 1.2500, while upside potential remains limited around the eight-month high of approximately 1.2900.
The Relative Strength Index (RSI) exhibits bearish momentum, dipping below the 40.00 threshold, signaling potential further downward movement if this level is sustained.
