Sterling awaits appropriate data later this week as markets unwind from US public holiday

• The pound is still in snooze mode on Monday.
• UK manufacturing PMI is in line with expectations at 52.5 in August.
• The US dollar index opens flat as US markets are closed for public holidays.

The British pound (GBP) held on to marginal gains during the European trading session on Monday, with US markets closed for Labor Day. This means very thin volumes, even thinner than on a typical Monday. However, the UK market has already had to digest this morning the S&P Global/CIPS Purchasing Managers’ Index (PMI) for the manufacturing sector, which fell in line with expectations to 52.5.

Meanwhile, the U.S. dollar index (DXY) — which measures the value of the U.S. dollar against a basket of six foreign currencies — is still recovering from a massive selloff a week ago. However, the greenback rallied last week on strong US economic data that could limit the US Federal Reserve’s (Fed) initial rate cut to just 25 basis points in September. With more PMI data due this week and US Jobs reports on Friday, it will all depend on this week’s data to confirm the size of interest rate cuts next week.

Daily market reasons: BoE looks for further tapering

• S&P Global released its Manufacturing Purchasing Managers’ Index (PMI) for August, coming in at 52.5, the same pace as the previous month.
• US markets are closed on Monday to celebrate Labor Day.
• The CME Fedwatch tool shows a 69.0% chance of a 25 basis point (bps) interest rate cut by the Fed in September, compared to a 31.0% chance of a 50 basis point cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 48.9%, while there is a 42.0% chance that rates will be 75 bps (25 bps + 50 bps ) below current levels and a 9.1% probability of rates being 100 (25 bps + 75 bps) basis points lower.
• As for the Bank of England (BoE), markets are not expecting any rate cut for the September 19 meeting, while the November 7 decision has an almost 87.2% certainty that the BoE will cut rates by 25 basis points .
• The benchmark US 10-year rate is trading at 3.90% and will not move on Monday due to the US bank holiday.
• The UK’s benchmark 10-year Gilt is trading at 4.06% and rose on Monday after closing at 4.01% on Friday.
• European shares are set to close with some minor losses on Monday, while the UK’s FTSE 100 will close with even a minor gain, outperforming even US futures.

GBP/USD Technical Analysis: Pretty much Friday except for the lull

Sterling is trading phenomenally at levels not seen since July 2023 against the US dollar. The recent pullback last week is more than welcome and now traders looking to go long GBP/USD will need to identify support levels where it makes sense to enter for a retest of at least the year-to-date high, near 1.3237 or 1.33 for a fresh high.

On the downside, mobile environments are still too far away to offer any kind of support. It is better to look at a retracement to the upper band of the trend channel, which has been well respected for the past six months, around 1.3120. If that level doesn’t hold, 1.3044 looks like a nice nearby platform that worked as resistance in August. Should further decline occur, the 55-day simple moving average (SMA) at 1.2869 falls in line with a June 2023 pivot level at 1.2849, just 20 pips apart as strong support area.

GBP/USD Daily Chart