Pound Sterling Faces Headwinds Ahead of Key UK & US PMI Releases

The Pound Sterling is exhibiting cautious behavior against its peers as markets anticipate the release of preliminary Purchasing Managers' Index (PMI) data from both the United Kingdom and the United States for August. Market participants are keenly observing whether the Bank of England (BoE) will display hesitancy regarding future interest rate cuts. Furthermore, Federal Reserve (Fed) Chair Jerome Powell's address at the Jackson Hole Symposium is also being closely monitored for insights into potential monetary policy shifts. Specifically, the United Kingdom's S&P Global PMI data is scheduled for release at 08:30 GMT. Economists project a slight acceleration in the UK Composite PMI to 51.6, fueled by sustained activity within the services sector. The Manufacturing PMI, on the other hand, is anticipated to register at 48.3, a marginal improvement from July's 48.0. This figure suggests a continued contraction in manufacturing activity, albeit at a more moderate pace. Investors will be scrutinizing the PMI data for indications of businesses' willingness to expand their workforce. Recent labor market indicators have suggested a reluctance among employers to hire new personnel, potentially influenced by rising employer contributions to social security schemes. Understanding the employment component of the PMI will be key to gauging the overall health of the UK economy. Simultaneously, expectations are building that Bank of England (BoE) officials might express reluctance to implement further interest rate cuts during the remainder of the year. Persistent inflationary pressures within the UK economy are a primary concern. Recent data from the Office for National Statistics (ONS) revealed a faster-than-anticipated rise in price pressures in July. The headline Consumer Price Index (CPI) reached 3.8% year-on-year, marking an 18-month high. The core CPI, which excludes volatile components like food, energy, alcohol, and tobacco, also rose at an annual rate of 3.8%. This stickiness in inflation makes further easing of monetary policy less likely in the near term. Earlier this month, the BoE lowered interest rates by 25 basis points (bps) to 4%, adopting a "gradual and careful" approach to monetary easing. The upcoming PMI data will be crucial in determining whether the BoE maintains this cautious stance. ### Daily Market Movements: Pound Sterling Declines Against US Dollar The Pound Sterling is experiencing a fourth consecutive day of losses against the US Dollar (USD). The GBP/USD pair is currently trading near 1.3440, reflecting the strength of the US Dollar as investors await Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium on Friday. At the time of writing, the US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, is approaching its weekly high near 98.45. The expectation that Powell will advocate for maintaining current interest rates is fueling the US Dollar's appreciation. Analysts suggest a hawkish tilt from Powell could negatively impact market sentiment. The Federal Open Market Committee (FOMC) minutes from the July meeting indicated that a majority of members favored a restrictive monetary policy approach, citing the need for further clarity regarding the impact of higher tariffs on inflation. The market widely anticipates that the Fed will closely monitor upcoming economic data to determine the appropriate course of action for monetary policy. According to the CME FedWatch tool, there is an approximate 81.6% probability that the Fed will reduce interest rates by 25 bps to a range of 4.00%-4.25% at its September meeting. These expectations are highly sensitive to incoming economic data and Fed communications. Adding to the complexity, US President Donald Trump has renewed his criticism of the Fed’s independence, calling for the resignation of Fed Governor Lisa Cook. This political pressure on the central bank adds another layer of uncertainty to the economic outlook. The preliminary US S&P Global PMI report for August, scheduled for release at 13:45 GMT, will be a key focus for investors in Thursday’s session. Economists forecast a moderate expansion in the Composite PMI. These data will provide valuable insights into the state of the US economy and potential implications for monetary policy. ### Technical Analysis: GBP/USD Corrects Towards 20-Day EMA The Pound Sterling is experiencing a slight decline against the US Dollar on Thursday. The GBP/USD pair is correcting towards the 20-day Exponential Moving Average (EMA), currently around 1.3460, indicating potential uncertainty in the near-term trend. The 14-day Relative Strength Index (RSI) is approaching 50.00, suggesting a lack of strong momentum. This indecision further emphasizes the importance of the upcoming data releases in determining the pair's direction. Key support lies at the August 11 low of 1.3400. Resistance is found near the July 1 high of 1.3790. The interplay between these levels and the upcoming data will likely dictate the GBP/USD's short-term trajectory. Pound Sterling FAQs What is the Pound Sterling? The Pound Sterling (GBP) is the world's oldest currency (dating back to 886 AD) and the official currency of the United Kingdom. It ranks as the fourth most traded currency in the foreign exchange (FX) market, accounting for approximately 12% of all transactions with an average daily volume of $630 billion (2022 data). Key GBP trading pairs include GBP/USD (Cable, 11% of FX volume), GBP/JPY (Dragon, 3%), and EUR/GBP (2%). The Bank of England (BoE) is the issuing authority for the Pound Sterling. How do the decisions of the Bank of England impact on the Pound Sterling? The Bank of England's monetary policy decisions are the single most influential factor determining the value of the Pound Sterling. The BoE's primary objective is to maintain price stability, targeting an inflation rate of around 2%. Interest rate adjustments serve as the primary tool for achieving this target. When inflation exceeds the target, the BoE typically raises interest rates to curb spending and investment, making credit more expensive. Higher interest rates generally strengthen GBP as they attract foreign investment to the UK. Conversely, when inflation falls below the target, indicating slowing economic growth, the BoE may lower interest rates to stimulate borrowing and investment. How does economic data influence the value of the Pound? Economic data releases, such as GDP, Manufacturing and Services PMIs, and employment figures, provide insights into the health of the UK economy and significantly impact the Pound Sterling's value. A strong economy generally supports Sterling, attracting foreign investment and potentially prompting the BoE to raise interest rates. Conversely, weak economic data typically weakens the Pound Sterling. How does the Trade Balance impact the Pound? The Trade Balance, which measures the difference between a country's exports and imports, is another important data release for the Pound Sterling. A country with high demand for its exports will see its currency appreciate due to increased foreign buyer activity. A positive net Trade Balance strengthens a currency, while a negative balance weakens it.