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Pound Sterling Retreats on Strong US Services PMI

The Pound Sterling (GBP) is facing pressure against the US Dollar (USD) on Wednesday, falling from a high of 1.2800. This decline coincides with a rebound in the USD after the release of a stronger-than-expected US ISM Services PMI report.

Market Movers:

  • Strong US ISM Services PMI: The PMI gauge for the US service sector, a significant portion of the economy, rose to 53.8 in May, exceeding expectations and indicating expansion.
  • Rising US Dollar Index: The DXY, reflecting the USD’s value against major currencies, climbed to 104.40 on the back of the positive PMI data.
  • Shifting Fed Rate Cut Expectations: Despite the strong PMI, speculation about a potential Fed rate cut in September persists. The CME FedWatch tool suggests a 65% chance of a rate decrease, up from 47% a week ago. This uncertainty might be capping the USD’s gains.

Daily Market Analysis:

  • GBP/USD Decline: The GBP/USD pair weakened after the US data release, but the near-term outlook remains unclear.
  • Focus on US Nonfarm Payrolls: This week’s key event is the release of US Nonfarm Payrolls data for May on Friday. Labor market data will be crucial for gauging the Fed’s future monetary policy decisions.
  • US Labor Market Normalization: Recent data suggests a potential slowdown in the US labor market, with lower-than-expected ADP private payroll figures and JOLTS Job Openings data.

UK Economic Calendar:

  • Limited UK Events: The UK economic calendar lacks major events this week, leaving the GBP/USD pair’s direction largely influenced by the USD and US data releases.
  • BoE Rate Cut Expectations: Financial markets anticipate two BoE rate cuts this year, possibly starting in August.

Technical Analysis:

  • GBP/USD Near Fibonacci Support: The GBP/USD pair is trading close to the 78.6% Fibonacci retracement level (based on the March 8 high and April 22 low), indicating potential support.
  • Bullish Indicators: The 20-day EMA sloping upwards and the 14-period RSI in the 40.00-60.00 range suggest a possible underlying bullish trend for the GBP/USD.

The Pound Sterling’s decline reflects the positive US data but remains influenced by ongoing Fed rate cut expectations. The upcoming US Nonfarm Payrolls report and the BoE’s potential policy decisions will be critical factors in determining the GBP/USD’s future direction. While technical indicators hint at a possible GBP rebound, the overall market sentiment and data releases will play a decisive role.