• Sterling remains forceful against the US dollar as expectations for a Federal Reserve rate cut in September continue to rise.
• Keir Starmer’s historic victory in the UK general election brought political stability.
• This week, investors will focus on the UK’s monthly GDP for May and the US CPI for June.

The British Pound (GBP) is showing mixed results against its main rivals in the London session on Monday. The British currency’s short-term outlook remains stable as the Labour Party led by Keir Starmer won an absolute majority in the United Kingdom (UK) general election against the Conservative Party led by Rishi Sunak. The Labour Party’s victory with an absolute majority brought political stability to the economy, which resulted in a huge boost to the UK financial markets.

Uncertainty about the Bank of England’s (BoE) outlook for interest rates remains high, although annual headline inflation has returned to its coveted 2%. Financial markets now believe there is a 50/50 chance the BoE will start cutting rates after its August meeting.

Investors this week will focus on the UK’s monthly gross domestic product (GDP) and factory data for May, which will be released on Thursday. The UK economy is estimated to have expanded by 0.2% after being flat in April.

Daily Market Factors Review: Sterling Remains Strong Against US Dollar

• The British pound maintains gains at 1.2800 against the US dollar (USD) in Monday’s European session. The GBP/USD pair is strengthening as the US dollar weakens after the United States (US) Nonfarm Payrolls (NFP) report for June indicated moderately good conditions in the labor market.
• The US NFP report indicated that hiring was not as forceful in April and May as previously reported. A revised analysis of the aforementioned months showed that the economy created 111,000 fewer jobs than previously estimated. The unemployment rate unexpectedly rose to 4.1% from estimates and the previous month, when it was 4.0%.
• Signs of weakening labor market strength are fueling expectations for an early rate cut by the Federal Reserve (Fed). Officials have reiterated that they want inflation to fall for months before lowering interest rates. However, Fed Chairman Jerome Powell said last week that unexpected labor market weakness could force policymakers to react to interest rates sooner.
• Average hourly earnings, a measure of wage growth that drives services inflation and consumer spending, also fell month-on-month and year-on-year, as expected.
• According to the CME FedWatch tool, 30-day price data for federal funds futures shows that the probability of a rate cut in September has risen to 75.8% from 64% recorded a week ago. The data also shows the Fed will make another rate cut at its November or December meeting.
• This week, investors will be closely watching the US Consumer Price Index (CPI) data for June, which will be released on Thursday. Economists see the annual core CPI, which strips out volatile food and energy prices, rising steadily by 3.4%.

Technical Analysis: Sterling Holds Near Three-Week High of 1.2800

Sterling is trading near a fresh three-week high of 1.2820 against the US dollar. GBP/USD has climbed above the 78.6% Fibonacci retracement of 1.2770, drawn from the March 8 high of 1.2900 to the April 22 low of 1.2300.

The currency pair is rising above the 20-day and 50-day exponential moving averages (EMA) near 1.2695 and 1.2675 respectively, suggesting that the short-term outlook is bullish.

The 14-day Relative Strength Index (RSI) is rising above 60.00. A sustained move above this level would shift momentum to the upside.