Pound Sterling surges against US Dollar as Greenback suffers from Israel-Iran ceasefire

• The Pound Sterling soars to near 1.3600 against the US Dollar as a ceasefire between Israel and Iran has reduced safe-haven demand.

• Better-than-expected UK flash PMI data for June has supported the Pound Sterling.

• Several Fed Governors vow for an interest rate cut in July to support the US labor market.

The Pound Sterling (GBP) extends its Monday’s upside move to near 1.3600 against the US Dollar (USD) during European trading hours on Tuesday. The GBP/USD pair strengthens as a global risk rally driven by the ceasefire between Israel and Iran has dampened demand for safe-haven assets such as the US Dollar.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls sharply to near 98.13 on Tuesday from a fresh two-week high of around 99.40 posted the previous day.

During late Asian trading hours, Iranian state media confirmed a truce with Israel, stating that “a ceasefire came into effect between Iran and Israel following four waves of Iranian attacks on Israeli-occupied territories”, Reuters reported.

On late Monday, United States (US) President Donald Trump confirmed in a post on Truth.Social that both Israel and Iran have agreed to a “Complete and Total CEASEFIRE”.

Signs of easing Middle East tensions has sent Oil prices down almost 15% from its recent highs, in a big relief for Oil-importing nations.

Daily digest market movers: Pound Sterling trades higher ahead of BoE speeches

The Pound Sterling outperforms its major peers on Tuesday, except for Asia-Pacific currencies,  receiving support from upbeat preliminary United Kingdom (UK) S&P Global Purchasing Managers’ Index (PMI) data for June released on Monday and the Bank of England’s (BoE) “gradual and calibrated” monetary easing guidance.

The PMI report showed that  overall business activity grew at a faster-than-projected pace. The service sector activity rose steadily, while factory activity declined but at a slower-than-expected pace. The report also showed that new business volumes returned to growth after contracting for six straight months. However, firms cut jobs due to rising staffing costs after the increase in employers’ contribution to social security schemes.

Last week, the BoE kept interest rates steady at 4.25%, as expected, and kept its gradual monetary expansion guidance. The UK central bank also warned of higher energy prices and downside risks to labor market.

For fresh cues on the monetary policy outlook, investors BoE Governor Andrew Bailey's testimony before the Lords Economic Affairs Committee and speeches from Monetary Policy Committee (MPC) member Megan Greene and Deputy Governor Dave Ramsden during the day.

In the US region, flash private sector PMI data for June came in stronger than projected. The Services PMI, which gauges activities in the services sector , came in higher at 53.1, compared to estimates of 52.9. The Manufacturing PMI steadied at 52.0, faster than expectations of 51.0. According to the PMI report, the sentiment of factory owners has increased on hopes of greater benefits from new trade policies imposed by US President Trump.

On the monetary front, a sudden change in Federal Reserve (Fed) officials’ stance on the monetary policy outlook has weighed on bond yields and the US Dollar. On Tuesday, Fed Governor Michelle Bowman joined Governor Christopher Waller and argued in favor of reducing interest rates as soon as in July.

“[I am] open to cutting rates as soon as the July FOMC meeting if inflation pressures stay contained,” Bowman said and warned of “signs of softness emerging in the labor market”. On Friday, Christopher Waller said that the Fed “should not wait for the job market to crash in order to cut rates."

Technical Analysis: Pound Sterling returns above 20-day EMA

The Pound Sterling advances to near 1.3600 against the US Dollar on Tuesday and aims to reclaim the three-year high of 1.3630 posted on June 13. The near-term trend of the GBP/USD pair turns bullish as it returns above the 20-day Exponential Moving Average (EMA), which is around 1.3500.

The 14-day Relative Strength Index (RSI) rebounds to near 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.

Looking down, the May 16 low around 1.3250 will act as key support zone. On the upside, the 13 January 2022 high around 1.3750 will act as a key barrier.