- The Pound Sterling rises on continuous growth in the UK business activity.
- Investors await BoE Mann and Bailey’s speech for fresh interest rate guidance.
- The uncertainty over US presidential elections continues to weigh on risky assets.
The Pound Sterling (GBP) bounces back to near 1.2970 against the US Dollar (USD) in North American trading hours on Thursday after refreshing a two-month low near 1.2900 on Wednesday. The GBP/USD pair gains as the US Dollar corrects slightly, with the US Dollar Index (DXY) dropping to near 104.20. However, the outlook of the US Dollar remains firm due to a slight decline in market expectations for the Federal Reserve (Fed) to reduce interest rates in each of the remaining policy meetings this year.
According to the CME FedWatch tool, the likelihood that the central bank will reduce interest rates by 50 bps to 4.25%-4.50% by the year-end has slightly declined to 68.3% from 71.7% a week ago. The tool shows that traders have priced in a 25-bps interest rate cut in November but are not fully confident about a similar move in December.
Growing uncertainty for the United States (US) presidential election outcome, coming in less than two weeks, has also improved the US Dollar’s appeal as safe-haven. Latest national polls show a fierce competition between former President Donald Trump and current Vice President Kamala Harris.
In Thursday’s New York session, investors will pay close attention to the US preliminary S&P Global PMI data for October, which will be published at 13:45 GMT. The Manufacturing and Services PMI are estimated to have contracted and expanded, respectively, but at a slower pace.
Meanwhile, the Initial Jobless Claims data for the week ending October 18 came in lower at 227K, lower than estimates and the former release of 242K.
Daily digest market movers: Pound Sterling rises as UK Composite PMI expands slightly
- The Pound Sterling gains against its major peers in Thursday’s North American session after the release of the preliminary United Kingdom (UK) S&P Global/CIPS Purchasing Managers Index (PMI) data for October. However, the initial reaction was on the weaker side. The flash PMI report showed that the output expanded but at a slower-than-expected pace in manufacturing as well as the service sector. The Composite PMI grew at a modest pace to 51.7 from 52.6 in September.
- “The early PMI data are indicative of the economy growing at a meager 0.1% quarterly rate in October, reflecting a broad-based slowing of business activity, spending, and demand across both manufacturing and services,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said.
- Meanwhile, the outlook of the Pound Sterling is expected to remain volatile as Bank of England (BoE) Governor Andrew Bailey remained confident about inflation decelerating faster than expected. “Disinflation is happening, I think, faster than we expected it to, but we still have genuine question marks about whether there have been some structural changes in the economy,” Bailey said during the Institute of International Finance event, Bloomberg reported.
- The comments from Bailey have prompted BoE’s dovish bets. According to market speculation, traders expect the BoE to cut interest rates in November and are heavily confident about repeating the move in December.
- In today’s session, BoE Monetary Policy Committee (MPC) member Catherine Mann is scheduled to speak at 13:00 GMT. Mann, an outspoken hawkish, was among four MPC members who voted to leave interest rates unchanged in August, the only time the BoE cut its key borrowing rates this year. At 19:45 GMT, Governor Bailey will deliver the Mike Gill Memorial Lecture at the US Commodity Futures Trading Commission (CFTC).
Technical Analysis: Pound Sterling steadies above 1.2900
The Pound Sterling is at make or a break near the lower boundary of a Rising Channel chart formation on the daily timeframe. The GBP/USD pair could face sharp selling pressure if it fails to hold the same.
The near-term trend of the Cable has worsened further as it has broken below the 100-day Exponential Moving Average (EMA), which trades around 1.2990.
The 14-day Relative Strength Index (RSI) slides to near 35.00, signals an active bearish momentum.
Looking down, the 200-day EMA near 1.2845 will be a major support zone for Pound Sterling bulls. On the upside, the Cable will face resistance near the psychological figure of 1.3000 and the 20-day EMA around 1.3060.
