Sterling hits new monthly high at 1.3000

• Sterling climbs to a fresh monthly high near 1.3000 against the US dollar ahead of key economic data for both the UK and the US.
• Fed Chairman Powell could signal in Jackson Hole whether the central bank will cut interest rates by 25 or 50 basis points (bps) in September.
• BoE Governor Bailey could uncover uncertainty about further rate cuts.

The British pound (GBP) is making a new monthly high near the psychological resistance of 1.3000 against the US dollar (USD) in the London session on Tuesday. The GBP/USD pair is showing absolute strength as the outlook for the US dollar is bleak amid firm speculation that the Federal Reserve (Fed) will start cutting interest rates in September.

The U.S. dollar index (DXY) — which tracks the greenback against six major currencies — rose to near 102.00 but remains near a fresh more than seven-month low.

Slowing economic data from the United States (US) in July suggests the economy is no longer overheating. The labor market has cooled and inflationary pressures remain on track to return to the desired 2% rate.

This week, the major triggers for the US dollar will be the release of the Federal Open Market Committee (FOMC) minutes and Fed Chairman Jerome Powell’s remarks at the Jackson Hole (JH) Symposium, which are scheduled for Wednesday and August 22-24. respectively. Investors will be looking at the FOMC minutes and the JH Symposium to see if the Fed will pivot to policy normalization aggressively or gradually.

A Reuters poll from Aug. 14-19 shows 54 percent of respondents believe the Fed will cut interest rates at each of its remaining meetings this year.

On the economic front, investors await preliminary US S&P Global PMI data for August, which will be released on Thursday. The flash composite PMI is expected to come in at 53.7, down from the previous release of 54.3, suggesting the economy expanded at a slower pace.

Daily Market Reasons: Sterling Gains on Expectations of BoE Rate Cut Approach

• The pound is showing a strong performance against its major peers in European trading hours on Tuesday. The British currency is trading firmly on expectations that the Bank of England (BoE) policy easing cycle will be slower than that of other central banks.
• Despite a sharp easing of price pressures in Britain’s services sector, a gauge of inflation closely watched by BoE policymakers, the drop is still not enough to force officials to cut interest rates aggressively. Services inflation eased to 5.2% in July from 5.7% in June. However, the reduction in services inflation has opened the door for sequential interest rate cuts by the BoE. Currently, markets have attached a 37 percent probability of such action, Reuters reported.
• For meaningful clues on the interest rate path, investors will focus on BoE Governor Andrew Bailey’s speech at the JH Symposium on Friday. Investors will be paying close attention to what he says about the outlook for wage growth and how much inflationary pressures could increase if they reaccelerate.
• Ahead of Bailey’s speech, investors will look to preliminary UK S&P PMI data for August due out on Thursday. Economists expect the manufacturing PMI to hold steady at 52.1, while services sector activity will improve to 52.8 from the previous release of 52.5.

Technical analysis: Sterling aims to break above 1.3000

Sterling continues its winning run for the fourth trading session on Thursday. GBP/USD gains up to near 1.3000 after a Bullish Flag breakout in the 4-hour time frame. Bullish Flag formation is characterized by lower volume where stocks are transferred from retail participants to institutional investors. A decisive breakout of the Flag pattern results in the continuation of the ongoing trend, which in this case is up.

All short-term and long-term EMAs are sloping higher, suggesting that the uptrend is well supported.

The 14-period Relative Strength Index (RSI) is hovering in the bullish range of 60.00-80.00, suggesting strong upside momentum.