Pound Sterling trades lower ahead of flash UK-US PMI data

• The Pound Sterling faces selling pressure against its peers, with investors awaiting the preliminary UK-US PMI data for July.
• Hopes of US-EU trade deal have improved demand for risk-perceived assets.
• The Fed is expected to leave interest rates steady next week.

The Pound Sterling (GBP) underperforms its major peers on Thursday ahead of the preliminary United Kingdom (UK) S&P Purchasing Managers' Index (PMI) data for July, which will be published at 08:30 GMT.

Economists expect the Composite PMI to come in at 51.9 against 52.0 in June, suggesting that the overall business activity continued to expand, but at a moderate pace.

Investors will closely monitor the hiring trend by the private sector as latest labor market data has demonstrated signs of slowdown due to an increase in employers' contribution to social security schemes. Additionally, the trend in the export order will be a major concern for investors, given trade uncertainty ahead of the United States' (US) tariff deadline on August 1.

In the North American session, all eyes will be on the flash US S&P Global PMI data for July. The PMI report is expected to show that the overall business activity grew at a faster pace.

Daily digest market movers: Pound Sterling holds onto gains against US Dollar

• The Pound Sterling trades firmly near the two-week high around 1.3580 against the US Dollar (USD) during the European session at the time of writing. The GBP/USD pair strengthens on continuous US Dollar underperformance, following a decline in demand for safe-haven assets.
• The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades cautiously near a fresh week low of almost three weeks around 97.00.
• The appeal of riskier assets, such as the Pound Sterling, improves on hopes that the United States (US) and the European Union (EU) will finalize a trade agreement ahead of the August 1 tariff deadline. An EU-US deal confirmation would diminish fears of damage to the global trade flow.
• Investors turn increasingly confident on US-EU trade agreement after a report from the Financial Times (FT) mentioned on Wednesday that economies on both sides of the Atlantic could finalize a pact, which would be similar to the tariff deal that took place between the US and Japan that announced on Tuesday. This means that Washington has offered a reduction in the baseline tariff and automobile levy to 15%.
• The FT report also signaled that EU officials are in a hurry to close a deal to avert a damaging trade war. Given that Japan and the EU exports a significant number of automobiles to the US, lower tariffs on cars from Tokyo would have increased competitiveness of Japanese automakers.
• On the domestic front, the next major trigger for the US Dollar will be the monetary policy announcement by the Federal Reserve (Fed) on Wednesday. According to the CME FedWatch tool, the Fed is almost certain to leave interest rates steady in the current range of 4.25%-4.50%. Investors will keenly watch Fed Chair Jerome Powell's commentary on the monetary policy guidance amidst fears that tariffs imposed by US President Donald Trump could accelerate inflationary pressures.

Technical Analysis: Pound Sterling returns above 20-day EMA

The Pound Sterling holds onto gains near 1.3580 against the US Dollar on Thursday, the highest level seen in two weeks. The near-term trend of the GBP/USD pair has turned bullish as it has returned above the 20-day Exponential Moving Average (EMA), which trades around 1.3526.

The 14-day Relative Strength Index (RSI) returns above 50.00, suggesting a strong buying interest at lower levels.

Looking down, the May 12 low of 1.3140 will act as a key support zone. On the upside, the July 1 high around 1.3790 will act as a key barrier.