Pound Sterling posts fresh weekly high on lower UK jobless rate and soft US PPI

• The Pound Sterling surges against the US Dollar on upbeat UK employment and a soft US PPI report.
• The UK Unemployment Rate unexpectedly fell to 4.2%, while Average Earnings grew more than expected.
• Investors await July inflation data from both the UK and the US, which will be published on Wednesday.

The Pound Sterling (GBP) jumps above 1.2800 against the US Dollar (USD) in Tuesday’s North American trading hours. The GBP/USD pair posts a fresh weekly high above 1.2800 as the US Dollar (USD) slides after the release of the softer-than-expected United States (US) Producer Price Index (PPI) data for July and United Kingdom (UK) Unemployment Rate surprisingly fall in three-months ending June. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops vertically below the crucial support of 103.00.

The report showed that annual PPI rose by 2.2%, slower than expectations of 2.3%, and June's reading of 2.7%, upwardly revised from 2.6%. In the same period, the core PPI, which strips off volatile food and energy prices, decelerated to 2.4% from the estimates of 2.7% and the former release of 3%. A slower growth in prices of goods and services at factory gates suggests whether the input prices have eased or higher interest rates by the Federal Reserve (Fed) have forced households to cut spending heavily. Soft PPI data will prompt expectations of a big interest-rate reduction announcement by the Fed in September.

Currently, the CME FedWatch tool shows that traders see a 54.5% chance that interest rates will be reduced by 50 basis points (bps) in September, increased from 49.5% after the release of the PPI report but are still significantly down from the 68% recorded a week ago.

The next trigger for the US Dollar is the US Consumer Price Index (CPI) data for July, which will be published on Wednesday. The US CPI report is expected to show that monthly headline and core inflation rose by 0.2%. Annual headline and core CPI are estimated to have decelerated by one-tenth to 2.9% and 3.2%, respectively. An expected decline in US price pressures would boost expectations of a big interest rate cut announcement by the Fed.

Daily digest market movers: Pound Sterling outperforms US Dollar

• The Pound Sterling delivers a sharp upside move against its major peers in Tuesday’s New York session. The British currency strengthens as the UK Office for National Statistics (ONS) reported upbeat labor market data for the three months ending in June, which has weighed on market expectations of subsequent interest-rate cuts by the Bank of England (BoE).
• The agency reported that the ILO Unemployment Rate unexpectedly declined to 4.2%. Economists expected the jobless rate to have increased to 4.5% from the prior release of 4.4%.
• Apart from improving the job market, the slower-than-expected decline in Average Earnings Excluding Bonuses has also dampened expectations of BoE subsequent rate cuts. Average Earnings, a wage growth measure that drives inflation in the service sector, rose at a faster-than-expected pace of 5.4% from the estimates of 4.6% but was slower than the former reading of 5.7%.
• On Monday, BoE Monetary Policy Committee (MPC) member Catherine Mann warned that inflation would remain persistent. Mann said, “Goods and services prices were set to rise again, and wage pressures in the economy could take years to dissipate.”
• Going forward, more volatility is anticipated in the Pound Sterling as July's UK CPI(CPI) data is lined up for release on Wednesday. The CPI report is expected to show that core inflation decelerated to 3.4% from the prior release of 3.5%.

Pound Sterling Price Today:

Technical Analysis: Pound Sterling surges above 1.2800

The Pound Sterling climbs above 1.2800 after a positive divergence formation on a daily timeframe, in which the pair continues to build higher lows while the momentum oscillator makes lower lows. This generally results in a resumption of the uptrend, but it should be confirmed with more indicators.

The 14-day Relative Strength Index (RSI) recovers after finding a cushion near 40.00, exhibiting signs of buying interest at lower levels.

The pair rebounds to near the 20-day Exponential Moving Average (EMA), which trades around 1.2800. The near-term outlook will become bullish if the GBP/USD delivers a decisive break above the 20-day EMA.

On the upside, the August 2 high at 1.2840 and the round level of 1.2900 will act as major resistances for the Pound Sterling. Alternatively, the recovery move could falter if the pair breaks below the August 8 low at 1.2665. This would expose the June 27 low at 1.2613, followed by the April 29 high at 1.2570.