Pound Sterling Unveils Its Strength as Fed Chair Powell Warns of Tight Markets

• The pound sterling shows strength against the US greenback as the Fed’s Powell sees a softening of America’s hard-earned market power.
• The Fed leadership did not provide any clear rate-cut information.
• UK GDP for May and US inflation for June come into the spotlight.

The pound sterling (GBP) edged higher against the US greenback (USD) in the London session early on Wednesday, recovering slightly from a near four-week high of 1.2850 later in the hour. The GBP/USD pair remains firm amid strong speculation that the Federal Reserve (Fed) will begin cutting interest rates during its September meeting.

The Fed remains likely to move toward policy normalization, Fed Chairman Jerome Powell reiterated in his semi-annual congressional testimony on Tuesday, despite avoiding offering any outright rate-cuts for this date. Powell argued in favor of keeping interest rates at their floating level for a longer period of time until he saw evidence that inflation would return to the specified rate of 2%.

What was shocking about Fed Powell’s remarks before Congress was his admission that the US economy is not hot, the job market is cold. Powell noted that the hard-earned market has recovered to where it was pre-pandemic-era.

Now that the threats are two-sided, a rate cut by the Fed in September seems like a good thing to do. For more clarity, investors will focus on the US Consumer Price Index (CPI) report for June. Which will be published on Thursday. The report estimated that core inflation, which strips out volatile food and labor costs, increased by 0.2% and 3.4% on a month-on-month and annual basis, respectively. Annual headline inflation is estimated to have declined to 3.1% from 3.3% in May, while the per 30-day figure is expected to remain slightly unchanged.

In a situation in which price pressures remain stable or hot, hopes of a rate cut in September will be dashed. On the contrary, comfortable numbers will boost their spirits.

Daily Digest Marketplace Movers: Pound Sterling takes center stage with UK GDP/US CPI.

• The pound sterling plays strongly against its primary peers due to some tailwinds. The British currency has strengthened as the clear victory of the UK (UK) Keir Starmer-led Labor Party in the parliamentary elections against the Rishi Sunak-led Conservative Party has brought political balance to the economic system. The BoE’s rate-cut hesitancy has deepened following tough guidance from BoE policymaker Jonathan Haskell.
• On Monday, Jonathan Haskell, who has been one of the leading proponents, noted the refusal to cut fees in August because inflation in the labor market still remains high due to strong wage growth. “I would like to keep rates on hold until there is greater certainty that underlying inflation pressures have eased steadily,” Haskell noted, reported Reuters.
• Conversely, monetary markets have recently been expecting the BOE to start reducing its key charges from the August assembly. Expectations of a BoE rate cut in August were brought about by bringing annual headline inflation back to the two% target of reserves.
• Meanwhile, investors’ attention is focused on unadjusted domestic product (GDP) and factory data per 30 days for May, which will be published on Thursday. Economists are expecting the economy to grow by 0.2% in April, but with no change in the latter. Commercial and production output is projected to increase on a monthly and annual basis and decline later in April.

Value of Pound Sterling these days:

Technical Research: Public Selling of Pound Sterling Above 20-day EMA

Pound Sterling aims to secure the important figure of 1.2800 against the US Dollar. The GBP/USD pair gathers strength for a decisive breakout forming an inverted Head and Shoulders (H&S) chart formation on a day-to-day time frame, with the neckline plotted near 1.2850. The breakout of the H&S formation ends in a bullish reversal.

Pushing the 20-day exponential moving average (EMA) near 1.2730 means growth is bullish in the near term.

The 14-day Relative Energy Index (RSI) climbed into the bullish zone of 60.00-80.00. Continued progress above the same level will secure upward momentum.