Sterling rises ahead of Powell, Bailey Jackson Hole speeches

• Sterling beats US dollar as Fed rate cut bets remain firm.
• Investors await Fed Powell and BoE Bailey speeches for fresh guidance on the outlook for US and UK interest rates.
• The BoE is expected to gradually cut interest rates.

The British pound (GBP) is extending its winning streak for a seventh session against the US dollar (USD) on Friday. GBP/USD is trading within touching distance of its all-time high of 1.3130, as the US dollar (USD) struggles to maintain its upward move from Thursday, which was largely driven by a lightning better than projected United States (US) ) S&P Global PMI data for August.

The US dollar index ( DXY ), which tracks the greenback against six major currencies, is nearing 101.40 and is expected to trade sideways ahead of Federal Reserve (Fed) Chairman Jerome Powell’s speech at 14:00 GMT in Jackson Hole (JH) Symposium.

Investors will be looking for clues about the potential size of interest rate cuts in September as the Fed is expected to pivot toward policy normalization. Market participants will also expect some guidance on interest rates and economic performance for the rest of the year.

Philadelphia Fed President Patrick Harker said in an interview at the JH event on Thursday that the central bank should focus more on a steady course of easing, which should begin in September, rather than the size of the action political, Reuters reported.

Separately, Boston Fed President Susan Collins signaled her support for cutting interest rates in September. Collins remained confident that the Fed would achieve its goals without triggering a recession.

Daily market reasons: Sterling outperforms on optimism over slower BoE policy easing

• Sterling is performing strongly against its major peers, excluding Asia-Pacific currencies, on firm speculation that the Bank of England’s (BoE) policy easing cycle will be slower than that of other major central banks. Strong expectations for a slower BoE policy normalization process are supported by the strong economic outlook for the United Kingdom (UK) and still high wage growth.
• Flash UK S&P Global/CIPS PMI data for August released on Thursday showed overall business activity rose at a faster pace to a four-month high of 53.4, driven by strong expansion in the manufacturing sector as well as in the service sector. The report also signaled a sharp reduction in job backlogs and positive sentiment on the business outlook that points to strong job creation.
• However, this strong economic outlook is unlikely to ease market speculation about another rate cut by the BoE this year as service sector input prices fell to their lowest level in just over three years and a half in August. This comes as a relief to BoE policymakers as they have looked uncomfortable cutting interest rates while services sector inflation remains high.
• Apart from Powell, investors are also awaiting BoE Governor Andrew Bailey’s speech at the JH Symposium, which is scheduled for 19:00 GMT. Andrew Bailey is expected to give further clues on whether the BoE will cut interest rates in September.

Technical analysis: Sterling aims to recover a two-year high of 1.3140

Sterling is inches away from revisiting a more than two-year high of 1.3140. The GBP/USD pair is moving higher in a Rising Channel chart pattern where every pullback is seen as a buying opportunity by market participants. All exponential moving averages (EMAs) are sloping higher, suggesting that the overall trend is bullish.

The 14-period Relative Strength Index (RSI) is hovering in the bullish range of 60.00-80.00, suggesting strong upside momentum. However, it reached overbought levels around 70.00, increasing the chances of a corrective pullback. On the downside, the psychological level of 1.3000 will be the crucial support for the GBP bulls.