The Pound Sterling (GBP) maintained its bullish momentum on Monday, holding near 1.3530 against the US Dollar (USD) as traders reacted to a surprise dovish turn from Federal Reserve Chair Jerome Powell during his speech at the Jackson Hole Symposium on Friday. The softer stance from the Fed boosted risk appetite, weakening the US Dollar and US Treasury yields while fueling demand for the Pound.
Powell Surprises Markets with Dovish Tone
Market participants had widely expected Powell to maintain a “wait-and-see” approach on rate adjustments. However, his speech struck a softer tone, signaling that the central bank may consider easing its restrictive stance sooner than expected.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell stated, highlighting growing concerns about labor market weakness.
This commentary pushed the US Dollar Index (DXY) to a near four-week low around 97.60 and drove 10-year US Treasury yields down to 4.27%, as traders ramped up bets for a rate cut in September.
Labor Market Risks in Focus
Powell’s remarks emphasized mounting downside risks to the labor market, warning that employment conditions could deteriorate rapidly.
“Downside risks to employment are rising, and if those risks materialize, they can do so quickly,” he noted.
This acknowledgment suggests the Fed is now prioritizing employment stability, even as inflation concerns linger. While tariffs were initially seen as a potential inflationary risk, Powell downplayed their long-term impact, stating that any price pressures were likely short-lived.
BoE’s Bailey Flags UK Economic Struggles
While the Pound gained support from a weaker USD, Bank of England (BoE) Governor Andrew Bailey struck a more cautious tone during his Jackson Hole appearance. Bailey pointed to “acute challenges” in the UK economy, particularly due to low labor force participation since the pandemic.
He stressed that demographic pressures, especially an aging workforce, will keep labor constraints in place for the foreseeable future. This persistent challenge, combined with weak underlying growth, raises questions about the BoE’s ability to maintain a hawkish stance in upcoming meetings.
Quiet UK Session Ahead
With UK markets closed for the Summer Bank Holiday on Monday, GBPUSD trading is expected to remain less volatile. However, the underlying tone remains bullish for the pair, with investors keenly awaiting fresh US economic data for further direction.
Upcoming Key Data: US PCE Index
All eyes now turn to the US Personal Consumption Expenditure (PCE) Price Index for July, due Friday. This data point is the Fed’s preferred inflation gauge and will play a crucial role in shaping expectations for September’s policy decision.
Current readings from the CME FedWatch tool show heightened confidence among traders that the Fed will deliver a rate cut next month, especially if inflation shows further signs of cooling.
Technical Outlook for GBPUSD
From a technical perspective, the GBPUSD pair is showing signs of sustained strength.
Immediate resistance lies near 1.3550, and a breakout above this level could open the door toward 1.3600.
Support levels are seen at 1.3480 and 1.3420, which could act as floors in case of minor pullbacks.
Momentum indicators suggest that buyers remain in control, with broader sentiment favoring further gains as long as the USD remains pressured.
Market Sentiment and Risk Appetite
The dovish pivot from the Fed has boosted risk appetite across global markets. Equities, commodities, and risk-sensitive currencies have rallied, while the US Dollar has weakened. For the Pound, this environment creates a supportive backdrop, particularly as traders position for potential rate adjustments in both the US and UK later this year.
Conclusion
The Pound Sterling’s strength against the US Dollar reflects a broader shift in market sentiment following Powell’s dovish remarks. While the Fed appears ready to pivot toward rate cuts amid growing labor market concerns, the BoE continues to grapple with structural economic issues.
As traders await key inflation data later this week, GBPUSD is likely to remain supported, with the potential to test higher levels if risk-on sentiment persists.
