Sterling recovers strongly with Fed Powell speech in focus

• The British Pound is recovering near 1.3400 against the US Dollar as investors expect the Fed to cut interest rates by 50 basis points in November.
• Investors are awaiting Fed Chair Powell’s speech on Thursday and August PCE inflation data on Friday.
• The Bank of England is expected to pursue a shallow monetary policy easing cycle.

The British Pound (GBP) is bouncing strongly near the key support of 1.3400 against the US Dollar (USD) in the North American session on Thursday after correcting sharply on Wednesday. The GBP/USD is finding support as investors have broadly backed the British Pound against the Dollar on strong speculation that the Federal Reserve (Fed) policy easing cycle would be deeper and faster than the one that the Bank of England (BoE) will follow in the rest of the year.

According to the CME FedWatch tool, the central bank is expected to further cut its key interest rates by 75 basis points (bps) at the remaining two meetings this year, suggesting one 50-bps cut and one 25-bps cut. Data on 30-day federal funds futures prices show that the probability of the Fed cutting interest rates by a larger than usual margin in November has risen to 61% from 39% a week ago.

For fresh interest rate clues, investors will focus on speeches by several Fed officials, including Chairman Jerome Powell, scheduled in the North American session. Last week, in the press conference following the monetary policy decision to cut interest rates by 50 bps, Powell emphasized the dependence on data for future policy actions.

On the economic front, market participants are awaiting the US Personal Consumption Expenditure (PCE) Price Index data for August, due on Friday. Signs of a further slowdown in inflationary pressures would boost market expectations for a 50 bps interest rate cut by the Fed, while higher figures would weaken them.

What’s moving the market today: The British pound recovers against the US dollar

• The British Pound is trading cautiously against its major peers on Thursday due to the absence of top-tier economic data from the UK. Therefore, the British currency is expected to be influenced by market sentiment and BoE interest rate expectations.
• Market sentiment appears to be supportive of risk-perceived assets due to massive Chinese stimulus and growing expectations of additional, larger-than-usual interest rate cuts by the Fed. S&P 500 futures have posted significant gains in the European session, showing strong risk appetite among investors.
• Meanwhile, the BoE is projected to deliver an interest rate cut at either of its two remaining monetary policy meetings this year. The BoE’s policy easing cycle appears to be shallower than that of other central banks as policymakers remain concerned about price pressures that remain persistent due to high inflation in the services sector. Annual services inflation, which is closely watched by BoE officials, rose sharply to 5.6% in August from 5.2% in July.

Technical Analysis: British Pound Gains Strength to Reclaim 1.3400

The British Pound makes a strong recovery move near 1.3400 in North American trading hours against the US Dollar after correcting near 1.3300 on Wednesday. The GBP/USD pair faced some selling pressure after printing a fresh over two-year high at 1.3430. The near-term outlook for Cable remains firm as the 20-day exponential moving average (EMA) near 1.3216 is tilted higher.

In early September, Cable gained strength after recovering from a corrective move near the trendline drawn from the December 28, 2023 high of 1.2828, from where it delivered a strong surge after a breakout on August 21.

The 14-day Relative Strength Index (RSI) is moving above 60.00, suggesting active bullish momentum.

Looking up, Cable will face resistance near the psychological level of 1.3500. On the downside, the psychological level of 1.3000 appears to be crucial support.