The Pound Sterling (GBP) weakens against most major peers on Tuesday, excluding the Japanese Yen, as market speculation for a Bank of England (BoE) interest rate cut in August intensifies. A recent Reuters poll suggests a greater than 58% probability of a 25 basis point reduction, although some uncertainty remains due to persistent service sector inflation.
BoE Rate Cut Speculation:
Investors anticipate a close 5-4 vote split within the BoE’s decision-making committee, reflecting the challenge posed by the relatively high service sector inflation rate of 5.7%. However, BoE Governor Andrew Bailey’s comments in the last monetary policy meeting hinted at a potential rate cut in August.
Further fueling rate cut expectations is UK Finance Minister Rachel Reeves’ pledge to implement above-inflation pay rises for public sector workers. This move raises concerns about persistent inflationary pressures and could influence the BoE’s decision.
Market Focus:
The market is currently focused on upcoming US economic data, including the preliminary S&P Global PMI for July, Q2 GDP, Durable Goods Orders, and the Personal Consumption Expenditures (PCE) Price Index. These figures will provide crucial insights into the Federal Reserve’s (Fed) potential timeline for reducing interest rates.
The Fed is expected to maintain its current interest rate levels in its upcoming meeting, but market participants anticipate a clear message about the likelihood of rate cuts in September due to significant progress in reducing inflation and increasing risks to labor market strength.
Technical Analysis:
The GBP/USD pair is experiencing a mean-reversion move towards the lower boundary of the Rising Channel chart pattern on a daily timeframe, having broken below the critical support of 1.2900. The pair is also trading below the 20-day Exponential Moving Average (EMA), indicating uncertainty in the near-term trend.
The 14-day Relative Strength Index (RSI) is approaching the 40.00 level, suggesting potential support for the downward momentum.
Key Levels:
- Support: The round level of 1.2800 serves as a crucial support zone for the Pound Sterling bulls.
- Resistance: The two-year high near 1.3140 remains a significant resistance zone for the Cable.
