Market Analysis

The pound sterling holds onto its gains as Fed Powell approves rate decreases in September

Amos Simanungkalit · 26 Aug 202411.4K Views

The Pound Sterling (GBP) hovers near a two-and-a-half-year high around 1.3200 against the US Dollar (USD) during Monday’s London session. The GBP/USD pair is poised to extend its seven-day winning streak as the US Dollar weakens following a clear announcement from Federal Reserve (Fed) Chair Jerome Powell, who indicated that the central bank would begin cutting interest rates in September.

The US Dollar Index (DXY), which measures the Greenback's value against a basket of six major currencies, is currently near a new year-to-date (YTD) low of 100.53.

Speaking at the Jackson Hole (JH) Symposium on Friday, Fed Chair Powell stated, "The time has come for policy to adjust." However, he avoided committing to a specific interest-rate cut schedule, emphasizing a data-dependent approach. He noted, "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

Powell's remarks suggest that the central bank is increasingly concerned about weakening labor market conditions, while he remains confident that inflation will return to the 2% target. He mentioned that upside risks to inflation have diminished, while downside risks to the labor market have grown. Powell added, "We will do everything we can to support a strong labor market as we make further progress toward price stability."

This week, the key driver for the US Dollar will be the release of the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for July, scheduled for Friday. The PCE inflation is expected to have grown steadily by 0.2% month-over-month.

On Monday, investors will turn their attention to the US Durable Goods Orders data for July, set to be released at 12:30 GMT. New Orders for Durable Goods, a critical indicator of core consumer inflation, are expected to have risen by a robust 4% following a significant decline in June. The Pound Sterling, on the other hand, will likely see limited movement as the United Kingdom (UK) is observing a bank holiday.

Technical Analysis: Pound Sterling Nears Two-and-a-Half Year High Close to 1.3200

The Pound Sterling has softened slightly against the US Dollar but remains close to 1.3200 after breaking out of a Rising Channel chart pattern on the weekly time frame. The GBP/USD pair has reached a fresh two-and-a-half-year high and is likely to continue its upward movement toward the February 4, 2022, high of 1.3640.

The upward trajectory of the 20-week Exponential Moving Average (EMA) near 1.2766 indicates a strong bullish trend.

The 14-period Relative Strength Index (RSI) is fluctuating within the bullish range of 60.00-80.00, suggesting strong upward momentum. However, with the RSI approaching overbought levels around 70.00, there is an increased likelihood of a corrective pullback. On the downside, the psychological level of 1.3000 will be a crucial support for the Pound Sterling bulls.