Sterling gains against the US dollar as traders prepare for Fed Powell’s speech

• Sterling returns to near 1.3350 against the US dollar as investors expect the Fed to cut interest rates by 50 bps in November.
• Investors await Fed Powell’s speech on Thursday and PCE inflation data for August on Friday.
• The BoE is expected to follow a shallow cycle of monetary policy easing.

The British pound (GBP) is recovering slightly from the key support near 1.3300 against the US dollar (USD) in the London session on Thursday, after correcting sharply on Wednesday. GBP/USD finds a cushion as investors broadly supported the pound against the greenback on strong speculation that the Federal Reserve’s (Fed) policy easing cycle would be deeper and faster than the one to be followed by Bank of England (BoE). ) in the rest of the year.

According to the CME FedWatch tool, the central bank is expected to further cut its key lending rates by 75 basis points (bps) in its remaining two meetings this year, suggesting there will be a 50 bps rate cut and a cut of 25 bps. Data on 30-day federal funds futures prices showed the likelihood the Fed would cut interest rates by a wider margin than usual in November rose to 61 percent from 39 percent a week ago.

For fresh interest rate guidance, investors will focus on speeches by various Fed policymakers, including Chairman Jerome Powell, scheduled in the North American session. Last week, in the press conference after the monetary policy decision to cut the interest rate by 50 basis points, Powell stressed that he remains dependent on the data for future policy actions.

On the economic front, market participants await US (US) Personal Consumption Expenditure (PCE) Price Index data for August, which will be released on Friday. Signs of a further easing of inflationary pressures would drive market expectations for a 50 basis point Fed rate cut, while the hot numbers would weaken them.

Daily Market Reasons: Sterling is trading cautiously against its major peers

• Sterling is trading cautiously against its major peers on Thursday due to the absence of top economic data from the United Kingdom (UK). The UK currency is therefore expected to be influenced by market sentiment and expectations of the BoE interest rate outlook.
• Market sentiment appears to be favorable for risk-on assets, thanks to China’s massive stimulus and rising expectations of further larger-than-usual interest rate cuts by the Fed. S&P 500 futures posted significant gains in the European session, demonstrating investors’ strong appetite for risk.
• Meanwhile, the BoE is expected to cut just one interest rate at either of its two remaining policy meetings this year. The BoE’s policy easing cycle appears to be shallower than that of other central banks, as policymakers remain concerned about price pressures that remain due to high inflation in the services sector. Annual services inflation, which is closely watched by BoE officials, rose sharply to 5.6% in August from 5.2% in July.

Technical Analysis: Sterling remains above 20-day EMA

Sterling is up around 1.3345 in European trading hours against the US dollar after correcting to near 1.3300 on Wednesday. GBP/USD faced selling pressure after hitting a new more than two-year high at 1.3430. The cable’s near-term outlook remains firm as the 20-day exponential moving average (EMA) near 1.3216 is sloping higher.

In early September, the cable consolidated after recovering from a corrective move to near the trend line drawn from December 28, 2023 high of 1.2828, from where it made a sharp rally after a breakout of 21 August.

The 14-day Relative Strength Index (RSI) is moving above 60.00, suggesting bullish active momentum.

Looking to the upside, the cable will face resistance near the psychological level of 1.3500. On the downside, the psychological level of 1.3000 appears as crucial support.