Pound Sterling grips gains above 1.3000 with Fed Minutes under spotlight

• The Pound Sterling exhibits strength against the US Dollar on Fed rate-cut optimism.
• Investors remain divided over the Fed rate-cut size in September.
• UK wage growth declines further in three-months ending July.

The Pound Sterling (GBP) exhibits a mixed performance against its major peers on Wednesday, with investors focusing on the Bank of England’s (BoE) Governor Andrew Bailey’s speech at the Jackson Hole Symposium on Friday. Andrew Bailey is expected to provide cues about whether the BoE will cut interest rates again in September.

Market expectations for BoE interest rate cuts in September have increased after July’s United Kingdom (UK) Consumer Price Index (CPI) report showed that core inflation, which excludes volatile items, decelerated at a faster-than-expected pace to 3.3% from the estimates of 3.4%. Also, UK service inflation, the most closely-watched inflation measure by BoE officials, fell sharply to 5.2% due to easing wage pressures.

Meanwhile, human resources data provider Brightmine reported that pay awards in the three months to July came in lower at 4.5% from the prior release of 5%. “Employers that have made pay awards so far this year have already reacted to the falling inflation environment by putting in place lower pay awards than made last year,” said Sheila Attwood, senior content manager at Brightmine, Reuters reported.

On the economic data front, investors will look to the UK preliminary S&P Global Purchasing Managers’ Index (PMI) data for August, which will be published on Thursday. Economists estimate that flash Manufacturing PMI remained steady at 52.1, while activities in the service sector improved to 52.8 from the prior release of 52.5.

Daily digest market movers: Pound Sterling grips gains above 1.3000

• The Pound Sterling clings to gains above the psychological support of 1.3000 against the US Dollar (USD) in Wednesday’s London session. The GBP/USD pair posted on Tuesday fresh year-to-date highs near 1.3050 amid sheer weakness in the US Dollar.
• The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, finds temporary support after sliding to near 101.30, the lowest level seen in more than seven months.
• Market participants appear to be largely bearish on the Greenback amid firm speculation that the Federal Reserve (Fed) will start reducing interest rates in September. Investors seem to be convinced about the Fed pivoting to policy normalization next month, but are split over the size of its first interest rate cut after years of policy tightening.
• For fresh cues over the interest rate path, investors await the Federal Open Market Committee (FOMC) minutes for the July meeting, which will be published at 18:00 GMT. In the monetary policy announcement, the Fed left its key borrowing rates unchanged in the range of 5.25%-5.50% but warned that the economic outlook is uncertain and that the Committee is vigilant to the risks to both sides of its dual mandate (inflation and employment).
• Meanwhile, the major source for investors to get cues about the rate-cut path will the Fed Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium, which will take place from Thursday to Saturday (Powell’s speech is expected on Friday at 14:00 GMT). Fed Powell is less likely to provide a preset course but would confirm that the central bank is prepared to adjust the monetary policy stance if risks emerge that could delay the attainment of the banks’ goals.

Technical Analysis: Pound Sterling approaches 1.3100

The Pound Sterling posts a fresh annual 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. 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. On the upside, the round-level resiatnce of 1.3100 and two-year high at 1.3140 will be the key resistance zones for the Pound Sterling bulls.