HG MARKETS:

At the commencement of the trading week, the Pound Sterling (GBP) sustains its upward momentum for the fifth consecutive session against the US Dollar (USD), with the GBP/USD pair surging to approximately 1.3480. This rally is largely attributed to sustained underperformance of the US Dollar, primarily due to escalating market expectations of interest rate reductions by the Federal Reserve (Fed). The US Dollar Index (DXY) declined by 0.17%, trading near 98.00, reflecting broad-based weakness in the Greenback.
Market sentiment increasingly anticipates a 25 basis point rate cut by the Fed during its September policy meeting, with the CME FedWatch Tool indicating an 88% probability. These expectations are reinforced by dovish commentary from Fed officials, including Governor Michelle Bowman, who cited the subdued July Nonfarm Payrolls report as justification for potentially implementing three rate cuts this year. The Fed appears more inclined to moderate its monetary policy amid softening labor market conditions.
Simultaneously, the Pound has benefitted from diminishing expectations of further monetary easing by the Bank of England (BoE). Following the central bank’s decision on Thursday to reduce rates by 25 basis points to 4%, its forward guidance signaled a “gradual and careful” approach to future cuts. Investor sentiment shifted accordingly, now anticipating the next cut in February rather than December. BoE Chief Economist Huw Pill emphasized a cautious outlook, noting inflation projections and uncertainty regarding the pace of subsequent rate reductions.
Looking ahead, market participants will closely monitor forthcoming macroeconomic releases. On Tuesday, the UK labor market data for the three months ending in June is expected, with the ILO Unemployment Rate projected to remain at 4.7%. Concurrently, US Consumer Price Index (CPI) data for July is anticipated to show headline and core inflation rising annually by 2.8% and 3.0%, respectively, reinforcing inflation persistence concerns.
Technically, the GBP/USD pair shows resilience, advancing above the 20-day Exponential Moving Average at 1.3408 and reaching a two-week high. The 14-day Relative Strength Index (RSI) has rebounded above the neutral 50.00 level, following a prolonged consolidation within the 20.00–40.00 range, suggesting a potential bullish reversal. Key technical levels include support near the August 1 low of 1.3140 and resistance around the July 23 high of 1.3585.