Sterling falls to 1.2700 as Fed rate cut bets ease

• Sterling falls to 1.2700 as prospects of a delay in Fed rate cut depresses market sentiment.
• Strong US NFP report for May hit market speculation on Fed rate cuts.
• This week, investors will focus on UK employment, US CPI and the Fed’s policy decision.

The British Pound (GBP) appears vulnerable against the US Dollar (USD), modestly below the round support level of 1.2700 in the American session on Monday. The GBP/USD pair weakens as market sentiment turns bearish after investors reduced their bets that the Federal Reserve (Fed) would begin cutting interest rates from the September meeting.

The CME FedWatch tool shows that 30-day federal funds futures price data suggests a 47% chance that the interest rate will be lower than the current level in September, down significantly from the 59.6% recorded ago. one week.

Investors had been hopeful that the Fed would begin cutting its key lending rates starting in September in the first four days of last week. Their confidence was boosted by weaker-than-expected United States (US) JOLTS job openings for April and ADP employment change data for May. However, strong labor demand and optimistic wage growth indicated by the US Nonfarm Payrolls (NFP) report for May released on Friday scared their confidence. Strong labor market conditions suggest a stubborn inflation outlook, which would force Fed policymakers to prefer maintaining the current interest rate framework for a longer period.

Daily market moves: Sterling remains on the defensive ahead of UK jobs numbers

• The British pound shows weakness against the US dollar as market speculation on the Fed’s interest rate path suggests there will only be one rate cut for the full year, at the November or December meeting. Expectations for the number of Fed rate cuts have dropped to one from two after the US NFP report remained stronger than expected. The US Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, rises further to 105.30.
• The next move of the US Dollar and the British Pound will be guided by the US Consumer Price Index (CPI) data for May and the Fed’s monetary policy decision on Wednesday, and the UK employment data United for the period from February to April on Tuesday.
• US annual core inflation, which excludes volatile food and energy prices, is estimated to have slowed to 3.5% from the previous release of 3.6%, with headline numbers growing steadily at 3.4%. The monthly headline CPI is expected to have increased at a slower pace of 0.2% from April’s reading of 0.3%, with core inflation maintaining the current pace of 0.3%.
• Meanwhile, the Fed is widely expected to keep interest rates steady in the 5.25%-5.50% range for the seventh consecutive time. At the Fed’s post-policy decision press conference, Fed Chair Jerome Powell could argue keeping interest rates higher until they are confident inflation will decline sustainably to the target rate. desired 2%.
• According to consensus, the UK employment report will show that the unemployment rate remained stable at 4.3%. Investors will also focus on average earnings, a measure of wage inflation that dictates consumer spending and is estimated to have grown steadily compared to the previous period. Bank of England (BoE) policy makers will be particularly focused on the measure of wage inflation as it is a key driver of services inflation which has been a key barrier to price pressures returning to normal. desired rate of 2%.
• On the political front, uncertainty over the general election in early July is expected to intensify further as UK Labor opposition leader Keri Starmer announced her party will present its election manifesto on Thursday. Exit polls have indicated that Labor is ahead of the Conservatives.

Technical Analysis: British Pound Continues to Hold 61.8% Fibonacci Retracement Support

The British Pound remains below 1.2700 against the US Dollar after falling sharply from the round resistance level of 1.2800. The GBP/USD pair falls but still holds the 61.8% Fibonacci retracement support (drawn from the March 8 high of 1.2900 to the April 22 low of 1.2300) at 1.2665.

Cable pulls back to the 20-day EMA, which is trading near 1.2710. The 50-day EMA continues to slope upwards, suggesting that the overall trend remains bullish.

The 14-period RSI has moved into the 40.00-60.00 range, suggesting that the bullish momentum has faded. However, the bullish bias remains intact.