Pound Sterling holds strength on UK Starmer’s victory and firm Fed rate-cut bets

• The Pound Sterling remains firm against the US Dollar as expectations for Fed rate cuts in September grew further.
• Keir Starmer’s historic victory in UK parliamentary elections has brought political stability.
• This week, investors will focus on the UK monthly GDP for May and the US CPI for June.

The Pound Sterling (GBP) exhibits a mixed performance against its major peers in Monday’s London session. The near-term outlook of the British currency remains firm as Keir Starmer-led Labour Party gained an outright majority against Rishi Sunak-led Conservative Party in the United Kingdom’s (UK) parliamentary elections. The victory of the Labour Party with an absolute majority has brought political stability to the economy, which has resulted in a sheer strength in UK financial markets.

Uncertainty over the Bank of England’s (BoE) interest-rate outlook remains high even though the annual headline inflation has returned to the desired rate of 2%. Financial markets currently see a 50% chance that the BoE will begin reducing interest rates from the August meeting.

This week, investors will keenly focus on the UK monthly Gross Domestic Product (GDP) and the factory data for May, which will be published on Thursday. The UK economy is estimated to have expanded by 0.2% after remaining unchanged in April.

Daily digest market movers: Pound Sterling remains firm against US Dollar

• The Pound Sterling holds gains to near 1.2800 against the US Dollar (USD) in Monday’s European session. The GBP/USD pair strengthens as the US Dollar weakens after the United States (US) Nonfarm Payrolls (NFP) report for June pointed to moderating labor market conditions.
• The US NFP report indicated that labor hiring was not as strong in April and May as reported earlier. A revised reading of the above-mentioned months showed that the economy created 111K fewer jobs than previously estimated. The Unemployment Rate unexpectedly rose to 4.1% from estimates and the prior month of 4.0%.
• Signs of loosening labor market strength boost expectations of early rate cuts by the Federal Reserve (Fed). Officials have reiterated that they want to see inflation declining for months before cutting interest rates. However, Fed Chair Jerome Powell said last week that an unexpected weakness in the labor market could force policymakers to react on interest rates sooner.
• Also, Average Hourly Earnings, a measure of wage growth that drives service inflation and consumer spending, softened expectedly on a monthly and annual basis. 
• According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the probability of rate cuts in September has increased to 75.8% from 64% recorded a week ago. The data also shows that the Fed will deliver subsequent rate cuts in the November or December meeting.
• This week, investors will pay close attention to the US Consumer Price Index (CPI) data for June, which will be published on Thursday. Economists see the annual core CPI, which strips off volatile food and energy prices, to have grown steadily by 3.4%. 

Technical Analysis: Pound Sterling trades near three-week high around 1.2800

The Pound Sterling trades close to a fresh three-week high at 1.2820 against the US Dollar. The GBP/USD pair has climbed above the 78.6% Fibonacci retracement at 1.2770, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300. 

The pair rises above the 20-day and 50-day Exponential Moving Averages (EMAs) near 1.2695 and 1.2675, respectively, suggesting that the near-term outlook is bullish.

The 14-day Relative Strength Index (RSI) rises above 60.00. A sustained move above this level would shift momentum towards the upside.