Pound Sterling trades broadly stable as Trump threatens Fed independence

• The Pound Sterling consolidates around 1.3460 against the US Dollar on Wednesday.
• Fed's Cook announces that she will file a lawsuit against her termination by US President Trump.
• BoE's Mann expressed a hawkish stance on interest rate guidance.

The Pound Sterling (GBP) trades in a tight range around 1.3460 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair consolidates as the US Dollar trades broadly stable, following the announcement from Federal Reserve (Fed) Governor Lisa Cook that she will file a lawsuit against her termination by United States (US) President Donald Trump.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, ticks up to near 98.40.

On Tuesday, Fed Cook's lawyer said in a statement, "His [Trump] attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action," Reuters reported.

Regardless of the outcome of the lawsuit filed by Fed Governor Cook, market experts believe that Trump's attempt to politicize the Fed is a big threat to the US Dollar's dominance. "Investors will naturally start to increasingly question the independence of the Fed, which would result in a steeper yield curve and a weaker dollar," analysts at ING said, Reuters reported.

Experts also believe that the entry of one more of Trump's guys into the rate-setting committee would strengthen the bid for more interest rate cuts in the near term.

According to the CME FedWatch tool, there is an 87% chance that the Fed will cut interest rates in the September monetary policy meeting.

Pound Sterling trades calmly on BoE Mann's hawkish remarks

• The Pound Sterling trades broadly stable, on a calm day, on Wednesday as Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann has argued in favor of holding interest rates at their current levels for a longer period as inflation is proving to be persistent, until any downside risks to economic growth materialize.
• "A more persistent hold on Bank Rate is appropriate right now, to maintain the tight - but not tighter - monetary policy stance needed to lean against inflation persistence persisting," Mann said on Tuesday in a speech at a conference to mark the Bank of Mexico's (Banxico) 100th anniversary, Reuters reported.
• In the last three months, inflation in the United Kingdom (UK) has been accelerating at a faster pace. In July, the headline Consumer Price Index (CPI) rose at an annual pace of 3.8%, the highest level seen in almost 18 months.
• In the policy meeting earlier this month, the BoE reduced interest rates by 25 basis points (bps) to 4%, with a slim majority, and guided a "gradual and careful" monetary policy expansion.
• Going forward, the GBP/USD pair will be influenced by the US Personal Consumption Expenditures Price Index (PCE) data for July, which will be released on Friday. The core PCE inflation data, which is closely tracked by Fed officials as it excludes volatile food and energy items, is expected to have grown at an annual pace of 2.9%, faster than the prior release of 2.8%.

Technical Analysis: Pound Sterling consolidates around 1.3460

The Pound Sterling trades sideways around 1.3460 against the US Dollar on Wednesday. The overall trend of the GBP/USD pair is bullish as it remains above the 200-day Exponential Moving Average (EMA), which trades around 1.3186.

The Cable is also forming an inverse Head and Shoulder (H&S) chart pattern, which leads to a bullish reversal after a corrective or downside move. The neckline of the H&S pattern is placed around 1.3580.

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting a sharp volatility contraction.

Looking down, the August 11 low of 1.3400 will act as a key support zone. On the upside, the July 1 high near 1.3790 will act as a key barrier.