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- GBP/USD drifts lower to around 1.3625 in Wednesday’s early European session.
- Traders brace for the release of US PCE data for July later on Wednesday.
- Expectations of a rate increase by the BoE this year could underpin the British Pound.
The GBP/USD pair declines to near 1.3625 during the early European trading hours on Wednesday. The US Dollar (USD) edges higher against the British Pound (GBP) as markets turn cautious ahead of the US July Personal Consumption Expenditures (PCE) Price Index data, which is due later on Wednesday.
US Treasury Secretary Scott Bessent said last week that the US Department of the Treasury will double its bond buyback operations to at least $4 billion per operation, up from the current $2 billion maximum, in an effort to stabilize surging long-term borrowing costs. This action exerted some selling pressure on the USD in the previous sessions.
The Greenback has recovered some lost ground after CNBC reported that the department could use part of its cash balance to buy back longer-dated bonds helped steady long-term yields.
Traders will take more clues from the US PCE inflation data later in the day. Economists expect that inflationary pressures remain sticky due to ongoing energy risks from the Middle East conflict. The Core PCE, excluding food and energy, is estimated to see a rise of 3.3% YoY in July.
All eyes will be on the speech from Fed Chairman Kevin Warsh at the Jackson Hole symposium on Friday. This event could offer some clues about the outlook for US interest rates. Any hawkish comments from Warsh could lift the US Dollar and create a headwind for the major pair.
Expectations that better-than-expected UK economic data through the first half of the year could prompt the Bank of England (BoE) to raise interest rates by at least 25 basis points (bps) this year provide some support to the Cable.
BoE Governor Andrew Bailey warned that rising conflict in the Middle East has caused severe volatility in global energy and oil prices, although UK inflation recently eased to 2.6% in June. The UK central bank anticipates energy market shocks will push inflation back up toward 3.2% later this year.
UK fiscal risk stays in focus ahead of October autumn statement
Strategists at Scotiabank caution that, despite the recent improvement in market sentiment, “fiscal risk will remain elevated into the fall as we look to the Autumn Statement (budget) scheduled for release on October 28.” They suggest that investors are likely to stay sensitive to policy headlines in the run-up to the statement, with the fiscal backdrop continuing to shape the broader Pound narrative through the autumn.
Technical Analysis: GBP/USD retains a bullish bias above the 100-day SMA
In the daily chart, GBP/USD maintains a bullish near-term bias as spot holds above the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. The pair is pressing into the upper half of the recent Bollinger envelope, with the upper band acting as immediate topside supply, while a firmly bid Relative Strength Index (RSI) around 67 hints that buyers still retain control, albeit in increasingly stretched conditions.
On the downside, initial support aligns at the Bollinger 20-day SMA around 1.3532, ahead of the 100-day SMA at 1.3442, with the lower Bollinger band near 1.3390 reinforcing a broader demand zone on deeper pullbacks. On the topside, a clean break above the Bollinger upper band at 1.3675 would open the door for the 1.3700 psychological level.
