Possible strengthening of the dollar over the pound | 02 July 2024

An event to look out for today:

16:30 GMT+3. USD - Chairman of the Board of Governors of the Federal Reserve Board Jerome Powell will deliver a speech

GBPUSD:

"The Bank of England's (BoE) dovish pause in June, which raised rates for an interest rate cut at its August monetary policy meeting, continues to undermine the British Pound (GBP). The US Dollar (USD), on the other hand, is strengthening after rebounding overnight from multi-day lows and appears to be acting as a headwind for the GBP/USD pair. On Monday, 10-year government bond yields rose to their highest level in a month amid concerns that the Trump administration's imposition of aggressive tariffs could spur inflation and trigger higher interest rates.

This, along with the softer tone of US equity futures, is also providing some support to the safe-haven US dollar. Nevertheless, growing confidence that the Federal Reserve (Fed) will begin its rate-cutting cycle in September is holding back further rises in US bond yields. These expectations were confirmed by the ISM PMI released on Monday, which showed that the US manufacturing sector contracted in June for the third consecutive month. This, as well as signs of fading inflation in the US, should allow the US central bank to start reducing borrowing costs.

Data from the US generally failed to meet expectations. The ISM US Manufacturing Purchasing Managers' Index (PMI) fell to 48.5 in June from 48.7 and completely missed forecasts for an increase to 49.1. The ISM US Manufacturing Price Index also fell sharply in June, falling to 52.1 from a previous reading of 57.0, further exceeding forecasts for a decline to 55.9.

U.S. markets were suddenly rattled by renewed concerns about the upcoming presidential election scheduled for November. Recent public debates have left it unclear who the clear front-runner will be, and on Monday the U.S. Supreme Court issued a ruling saying courts have limited ability to bring criminal charges against sitting presidents.

There is little economic data in the UK this week, but sterling traders will be keeping an eye on the parliamentary elections scheduled for Thursday. As for the US, investors will await Federal Reserve (Fed) Chairman Jerome Powell's speech on Tuesday, followed by ADP employment change data on Wednesday, and on Friday the latest US Non-Farm Payrolls (NFP) and Average Hourly Earnings for June.

Trading recommendation: Trade predominantly with Sell orders from the current price level

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