Pound Sterling capitalizes on strong flash UK PMI

• The Pound Sterling recovers after upbeat preliminary UK S&P Global/CIPS PMI for July.
• UK’s Composite PMI beats estimates and the former release.
• The Fed is expected to pivot to policy normalization in September. 

The Pound Sterling (GBP) bounces back against its major peers in Wednesday’s London session after upbeat preliminary S&P Global/CIPS Purchasing Managers’ Index (PMI) data for July. The Composite PMI came in higher at 52.7 than estimates of 52.6 and the former release of 52.3 due to an increase in activities in the manufacturing as well as service sectors. The Manufacturing and Services PMI expanded to 51.8 and 52.4, respectively, outperforming their former releases.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, “The first post-election business survey paints a welcoming picture for the new government, with companies operating across manufacturing and services, having gained optimism about the future, reporting a renewed surge in demand and taking on staff in greater numbers. Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut.”

Earlier, the British currency was underperforming amid growing speculation that the Bank of England (BoE) will begin cutting interest rates in August. Market experts see the United Kingdom’s (UK) economy struggling to cooperate with BoE’s high interest rates. The consequences of a restrictive monetary policy stance are clearly visible in households’ spending, as the UK’s Retail Sales, a key measure of consumer spending that prompts inflationary pressures, contracted at a faster-than-expected pace in June.

Meanwhile, BoE officials refrain from endorsing rate cuts due to high inflation in the service sector. UK service inflation grew steadily by 5.7% in June.

Daily digest market movers: Pound Sterling rebounds against major peers

• The Pound Sterling weakens to nearly 1.2880 against the US Dollar (USD) in European trading hours on Wednesday. The GBP/USD pair extends its correction below 1.2900 amid increasing risk aversion. Meanwhile, the US Dollar clings to gains ahead of a slew of United States (US) economic data. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near a weekly high at around 104.50.
• In Wednesday’s session, investors will also focus on the preliminary US S&P Global PMI data for July, which will be published at 13:45 GMT. The report is expected to show that the Manufacturing PMI expanded at a nominal pace of 51.7 from June’s reading of 51.6. The Services PMI, a measure of activities in the service sector, is estimated to have expanded at a slower pace of 54.4 from the prior release of 55.3. The economic data will convey the current economic health.
• This week, the main triggers for the US Dollar will be the preliminary annualized Q2 Gross Domestic Product (GDP) and the Personal Consumption Expenditures Price Index (PCE) data for June, which will be published on Thursday and Friday, respectively. The US economy is estimated to have grown by 1.9% from the former release of 1.4%.
• Investors will keenly focus on the core PCE inflation, the Federal Reserve’s (Fed) preferred inflation measure, to get fresh cues about when the central bank will start reducing interest rates. Currently, financial markets expect the Fed to begin lowering its key borrowing rates in September. 
• Meanwhile, investors seek fresh developments on the US presidential elections in November. Market experts see Donald Trump winning the elections despite Democrats nominating Vice President Kamala Harris as their leader.

Technical Analysis: Pound Sterling struggles to recapture 1.2900

The Pound Sterling falls below the crucial support of 1.2900 against the US Dollar. The GBP/USD pair declines to near the horizontal support plotted from the March 8 high near 1.2900, which used to be a resistance for the Pound Sterling bulls. The Cable has dropped near the 20-day Exponential Moving Average (EMA), which trades around 1.2860.

The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded. However, the bullish bias remains intact.

On the upside, a two-year high near 1.3140 will be a key resistance zone for the pair. On the other hand, the upward-sloping trendline from the April 22 low will act as a major support zone around 1.2750.