Sterling slips to near 1.3100 with US manufacturing PMI on horizon

• Sterling slips to near 1.3100 against the US dollar as the greenback clings to gains ahead of US ISM manufacturing PMI for August.
• US NFP data for August would be the major trigger this week.
• Investors see the BoE keeping interest rates at 5% this month.

The British pound (GBP) is underperforming, just above the crucial 1.3100 support against the US dollar (USD) in the London session on Tuesday. GBP/USD edged lower as the US dollar edged closer to a near two-week high as investors turned to the United States (US) August non-farm payrolls (NFP) data out on Friday.

The US Dollar Index (DXY), which tracks the greenback against six major currencies, is consolidating near 101.70.

Investors are eagerly awaiting labor market data as they are expected to fuel market speculation about the extent of interest rate cuts by the Federal Reserve (Fed) this month. Traders are currently split on whether the Fed will cut interest rates gradually by 25 basis points (bps) or aggressively by 50 bps.

The importance of labor market data increased significantly as Fed Chairman Jerome Powell’s comments at the Jackson Hole Symposium (JH) indicated that the central bank is more focused on preventing job demand as officials are confident that inflationary pressures remain on track. sustainable return to the bank’s 2% target.

Investors will also get clues about the current state of the labor market from the US JOLTS Job Openings data for July and the ADP Employment Change data for August, which will be released on Wednesday and Thursday, respectively.

In Tuesday’s session, the US dollar will be influenced by the S&P Global (final estimate) and ISM Manufacturing Purchasing Managers Index (PMI) data for August, which will be published in the North American session. Economists expect manufacturing activity to decline at a slower pace, with the official ISM PMI coming in at 47.5 from 46.8 in July.

Daily market reasons: Sterling falls despite BoE looking set to leave interest rates steady at 5%

• Sterling underperformed its major peers, excluding Asia-Pacific currencies, during European trading hours. The British currency remains on the back foot, even though the Bank of England (BoE) is expected to follow a shallow interest rate cut cycle this year compared to its central bank peers.
• Traders see little chance of the BoE cutting interest rates in September but are confident in November, Reuters reported. Market speculation for a September rate cut is weak as inflationary pressures in the United Kingdom (UK) are expected to remain sticky due to the strong economic outlook. BoE Governor Andrew Bailey’s comments at the JH Symposium also indicated that the central bank will be careful not to cut interest rates too quickly or too much.
• The final estimate of the S&P Global/CIPS Manufacturing PMI showed on Monday that UK manufacturing activity expanded to a 26-month high of 52.5 in August as a strong recovery in manufacturing continued, of new orders and labor. request.
• “The UK manufacturing sector remained a positive contributor to broader economic growth in August. The PMI hit a 26-month high of 52.5, reflecting solid expansions in output and new orders and the strongest job growth in more than two years. Growth is broad-based in the manufacturing sector, with the capital goods sector being a standout performer,” said Rob Dobson, director at S&P Global Market Intelligence.
• For further interest rate clues, investors await BoE policymaker Sarah Breeden’s speech, which is scheduled for 12:45 GMT. Breeden was among the policymakers who voted to cut interest rates in August by 25 basis points (bps) to 5%, along with Andrew Bailey, Swati Dhingra, Dave Ramsden and Clare Lombardelli.

Technical Analysis: Sterling sees slight support below 1.3100

Sterling falls to near 1.3100 against the US dollar. GBP/USD is under pressure after breaking below the 1.3200 round support last week. Cable can find buying interest near the breakout region of a Channel chart formation on a daily time frame.

The 14-day Relative Strength Index (RSI) is falling to near 60.00 after breaking out of overbought conditions, signaling a lack of bullish momentum at this time.

However, short- and long-term upward-sloping exponential moving averages (EMAs) suggest a strong uptrend.

If the bullish momentum resumes, the cable is expected to rally towards the psychological resistance of 1.3500 and the February 4, 2022 high of 1.3640, after breaking a new two-and-a-half-year high of 1.3266. On the downside, the psychological level of 1.3000 will be the crucial support for the GBP bulls.