Pound Sterling trades calmly ahead of UK-US PMI, Fed Powell's speech

• The Pound Sterling wobbles against its peers ahead of the flash UK-UK PMI data for September.
• The UK Composite PMI is expected to come in lower at 52.7.
• Investors await Fed Powell's speech for fresh cues on the monetary policy outlook.

The Pound Sterling (GBP) trades broadly calm against its peers on Tuesday ahead of the preliminary United Kingdom (UK) S&P Global Purchasing Managers' Index (PMI) data for September, which will be released at 08:30 GMT.

The PMI report is expected to show that the Composite PMI dropped to 52.7 from 53.5 in August, indicating that the overall business activity expanded, but at a moderate pace. A slowdown in the overall business activity growth came on the back of continued weakness in the manufacturing sector. The Manufacturing PMI is expected to have contracted at a steady pace of 47.0, with the Services PMI expanding at a moderate pace to 53.5 from 54.2 previously.

Signs of a slowdown in the overall business activity would weigh on the Pound Sterling, which has already been under pressure due to the worsening UK fiscal situation. Mounting UK public debt and surging Gilt yields are weighing on the economic growth outlook, paving the way for more taxes by the government in the release of the Autumn Budget in November.

Last week, the data showed that UK public sector net borrowing hit £18 billion, the highest level seen in five years.

Meanwhile, investors seek fresh cues about whether the Bank of England (BoE) will cut interest rates again in the policy meetings remaining this year. Last week, the BoE held interest rates steady at 4%, as expected, and retained a "gradual and careful" monetary easing approach.

Daily digest market movers: Pound Sterling wobbles against US Dollar

• The Pound Sterling consolidates around 1.3515 against the US Dollar (USD) during the European trading session on Tuesday. The GBP/USD pair flattens as investors await the speech from Federal Reserve (Fed) Chair Jerome Powell at the Greater Providence Chamber of Commerce at 16:35 GMT.
• The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades cautiously near Monday's low at around 97.30 at the press time. The USD Index fell sharply on Monday after failing to extend its three-day winning streak above 97.85.
• Investors will pay close attention to Fed Powell's speech to get cues about the pace at which the central bank will cut interest rates going forward. In the policy meeting last week, the Fed announced a 25-basis-point (bps) reduction in interest rates, the first of 2025, and signaled two more in the remainder of the year.
• The Fed started the monetary-easing campaign amid a slowing United States (US) job market. On Monday, a slew of Federal Open Market Committee (FOMC) members stated that the rate cut was precautionary to support weakening labor demand. However, FOMC members warned that the central bank needs to remain cautious on further monetary policy expansions as inflation remains well above the 2% target.
• On the contrary, Fed Governor Stephen Miran stated that interest rates should be reduced further by roughly two percentage points to offset risks to employment. "Fed policy is very restrictive and poses risk to Fed's employment mandate and I believe appropriate Fed funds rate is in mid-2% area, almost 2 percentage points below current level," Miran said.
• On the economic front, investors will focus on preliminary US S&P Global PMI data for September, which will be published at 13:45 GMT. The Composite PMI is expected to have remained steady at 54.6, suggesting that the overall business activity expanded at a consistent pace.

Technical Analysis: Pound Sterling flattens above 1.3500

The Pound Sterling trades flat around 1.3515 against the US Dollar on Tuesday. The near-term trend of the GBP/USD pair remains bearish as it trades below the 20-day Exponential Moving Average (EMA), currently hovering around 1.3525. The Cable trades near the lower end of a Rising Channel formation around 1.3470

The 14-day Relative Strength Index (RSI) has fallen sharply below 50.00. A fresh bearish momentum would emerge if the RSI breaks below 40.00.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the July 1 high near 1.3800 will act as a key barrier.