The Pound Sterling (GBP) saw a notable increase against the US Dollar (USD) during Thursday’s European trading session, driven by a weaker USD and market anticipation of Federal Reserve interest rate cuts. As of the latest data, the GBP/USD pair is benefiting from the subdued performance of the Greenback following the release of the US Consumer Price Index (CPI) report for July, which indicated inflation is on track to reach the Federal Reserve’s 2% target.
The US Dollar Index (DXY), which measures the dollar’s value against a basket of major currencies, experienced a slight pullback, hitting a new weekly low of 102.20. The CPI report revealed moderate inflationary pressures, aligning with expectations and bolstering confidence in a potential dovish Fed rate cut in September. However, opinions remain divided on the magnitude of the anticipated rate reduction.
Atlanta Fed Bank President Raphael Bostic’s dovish stance on interest rates further reinforced market expectations. In an interview with the Financial Times, Bostic expressed support for a rate cut in September and indicated openness to a half-point reduction if the labor market weakens further.
Investors are now looking ahead to the release of US Retail Sales data for July, scheduled for 12:30 GMT. Economists forecast a 0.3% increase in retail sales following a flat June. This data will be crucial for gauging consumer spending trends and the broader economic outlook.
Pound Sterling Outperforms Major Peers Amid Positive Economic Reports
The Pound Sterling is demonstrating strong performance against most major currencies, except the Australian Dollar (AUD), during Thursday’s London session. The UK’s economic data for the second quarter revealed growth in line with expectations. The flash Gross Domestic Product (GDP) report indicated a 0.6% quarterly and 0.9% annual increase. While growth moderated compared to the previous quarter, it remains robust. June’s economic activity was stable, as anticipated.
The UK’s Consumer Price Index (CPI) report for July showed a faster-than-expected deceleration in core CPI, which fell to 3.3% from June’s 3.5%, driven by decreased service sector inflation and slower wage growth. This decline has increased market expectations for a possible quarter-point rate cut by the Bank of England (BoE) in September, with current projections at 44%, up from 36% before the CPI data was released.
Additional data from the UK Office for National Statistics (ONS) reported robust growth in June’s Industrial and Manufacturing Production, with increases of 1.1% and 0.8% respectively. Although year-on-year figures showed slower contraction, the overall industrial sector showed resilience.
Technical Analysis: GBP/USD Near Two-Week High
The Pound Sterling has advanced to a two-week high of 1.2870 against the US Dollar. The GBP/USD pair continues to hold above the 20-day Exponential Moving Average (EMA) at approximately 1.2800. A recovery from a six-week low of 1.2665 indicates a potential uptrend, although confirmation from additional indicators is required.
The 14-day Relative Strength Index (RSI) is showing renewed buying interest after finding support near 40.00. On the upside, resistance levels are seen at the round figure of 1.2900 and the psychological level of 1.3000. Conversely, a drop below the August 8 low of 1.2665 could expose further support levels at the June 27 low of 1.2613 and the April 29 high of 1.2570.
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