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Pound Sterling Weakens on BoE Rate Cut Expectations, US Outlook

The Pound Sterling (GBP) remains under pressure near a five-month low around 1.2360 as markets anticipate a divergence in central bank policy between the Bank of England (BoE) and the US Federal Reserve (Fed).

Key Factors:

  • BoE Rate Cut Bets: Investors increasingly price in earlier BoE rate cuts, potentially starting in August, weakening the Pound Sterling.
  • Fed Outlook: A robust US economic outlook, including strong consumer spending, fuels expectations for higher-for-longer Fed interest rates, supporting the US Dollar.
  • PCE Data: This week’s US core PCE data release, a key inflation measure, could influence Fed rate hike expectations. Currently, markets see the Fed starting cuts in September.
  • Geopolitical Relief: Easing tensions between Israel and Iran offer some support to riskier assets, potentially limiting GBP losses.

Technical Analysis:

  • Bearish Continuation: GBP/USD remains vulnerable after failing to hold above 1.2400, with a breakdown of the Head and Shoulders pattern confirming the bearish outlook.
  • Key EMAs: Declining 20-day and 50-day Exponential Moving Averages (EMAs) at 1.2525 and 1.2600 respectively, signal sustained bearish sentiment.
  • RSI Indicator: The Relative Strength Index (RSI) in the bearish range suggests strong selling momentum.