The Pound Sterling (GBP) surged towards 1.2770 on Wednesday, bouncing back from a recent low of 1.2615. This impressive rebound was fueled by a weakening US Dollar (USD), following disappointing US private payrolls and services PMI data, which have intensified expectations of Federal Reserve (Fed) rate cuts.

Market Drivers: US Economic Woes and BoE’s Vigilance

• Weaker US Data: The ADP Employment report and the ISM Services PMI both fell short of expectations, raising concerns about the US economic outlook and bolstering the case for Fed rate cuts.
• Fed Chair Powell’s Comments: Powell’s remarks at the ECB Forum on Central Banking, acknowledging the disinflationary trend but emphasizing the need for further data, have added to the uncertainty surrounding the Fed’s policy path.
• BoE’s Focus on Inflation: While headline inflation in the UK has returned to the BoE’s target, concerns about persistent service sector inflation remain, preventing the central bank from easing monetary policy prematurely.

Upcoming Catalysts: US NFP and FOMC Minutes

• US Nonfarm Payrolls (NFP): Friday’s release of the US NFP data for June will be a crucial event for both the USD and the GBP, as it will shed light on the current state of the US labor market and its potential impact on inflation.
• FOMC Minutes: The release of the FOMC minutes from the June meeting will provide further insights into the Fed’s policy discussions and could offer clues about the timing of potential rate cuts.

Technical Analysis: GBP/USD Surges Above Key Resistance

The GBP/USD pair has decisively broken above the 78.6% Fibonacci retracement level at 1.2770 and the 20-day and 50-day EMAs, signaling a bullish reversal in the short term. The 14-day Relative Strength Index (RSI) is approaching the 60.00 level, indicating strengthening bullish momentum.

Key Takeaways:

• The Pound Sterling is rallying on the back of weaker US economic data and growing expectations of Fed rate cuts.
• Upcoming US NFP data and FOMC minutes will be crucial for determining the USD’s future trajectory.
• The technical outlook for the GBP/USD pair is bullish, with potential for further upside if the current momentum continues.