The Pound Sterling (GBP) started the new week on the offensive, posting impressive gains against most of its major peers. It continues to rise, indicating extremely bullish strength for the fifth consecutive day in USD pairs. As of this Monday, the GBP was again up near USD 1.3480. This impressive rally happens amid ongoing concerns from investors about the US dollar.
Recent strength in GBP is due to a combination of factors. Ongoing US Dollar weakness and a firm UK economic outlook have been central to this remarkable situation. The GBP/USD currency pair has blasted above its 20-day Exponential Moving Average (EMA). This 200-day EMA is situated now right around 1.3408 and it is signaling a bullish trend. Indeed, the Pound was especially strong against the Swiss Franc, an even more compelling marker of its strength in today’s market landscape.
The dollar’s own underperformance is a major factor in the Pound’s rise to the top. The US Dollar Index (DXY) fell by 0.17%, ending near 98.00. Traders are re-evaluating their outlooks for US monetary policy. Analysts suggest that the recent fluctuations in the dollar may have encouraged British investors and traders to capitalize on the strengthening Pound.
As traders position themselves for the future, they are especially focused on new UK jobs figures which will provide more information about the present situation in the labor market. The data covers the three months ending with June. The fourth quarter survey of 2023 is set to be the one that finally shows UK businesses are no longer wary of increasing their staff numbers in an increasingly volatile economy. The consensus of economists surveyed predicts a flat reading on the ILO Unemployment Rate of 4.7%. At the same time, earnings on average—with and excluding bonuses—are expected to see relatively subdued growth at 4.7% YoY.
The BoE has been delivering big interest rate cuts of 25 basis points at a time, with its current interest rate resting at 4%. They pledge to be “gradual and careful” in the pace of any future rate reductions. Huw Pill, a member of the Monetary Policy Committee, remarked on this approach:
“There’s still a little bit further downward to go with Bank Rate. I think the pace at which those downward moves perhaps go forward is a little bit less clear than the pace that we’ve seen over the last year.”
This somewhat dovish posture is completely in line with what we’ve heard from other monetary policymakers. Michelle Bowman noted,
“With economic growth slowing this year and signs of a less dynamic labor market becoming clear, I see it as appropriate to begin gradually moving our moderately restrictive policy stance toward a neutral setting.”
Just as supportive as the above fundamental indicators is the technical picture, which is very positive Pound sentiment. Additionally, the 14-day Relative Strength Index (RSI) has soared past the mid-point of 50.00. This bodes well for continued short-term progress! Nonetheless, bulls should be careful because key resistance levels are fast approaching. The first major obstacle is found at the July 23 high, just above the 1.3585 area. On the downside, support is visible at the August 1 low, ~1.3140.
Investors are encouraged to keep an eye on a growingly positive UK economic indicator and their impact on global market sentiment. As they navigate this evolving landscape, insights from employment data will be pivotal in shaping expectations for future monetary policy adjustments by the Bank of England.