Pound Sterling extends gains against US Dollar on US government shutdown risks

• The Pound Sterling rises to near 1.3450 against the US Dollar amid risks of a likely US government shutdown.
• US Democrats want Republicans to undo cuts in the healthcare budget.
• BoE’s Ramsden argues in favor of interest rate cuts to support weakening job demand.

The Pound Sterling (GBP) extends its upside to near 1.3450 against the US Dollar (USD) during the European trading session Tuesday. The GBP/USD pair advances as the US Dollar trades cautiously amid fears of a potential United States (US) government shutdown, with Republicans struggling to persuade Democrats to support short-term funding bill before Tuesday’s midnight deadline.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally lower around 97.80.

Prospects of a partial US government shutdown have escalated significantly, following comments from Vice President (VP) JD Vance to CNBC, after meeting with Democrats, recognising that the administration could face a shutdown. “I think we’re headed to a shutdown because the Democrats won’t do the right thing,” Vance said.

Democrats have been denying approving the stopgap bill in the House of Senate as they want White House to roll back cuts in healthcare benefits announced earlier this year.

Meanwhile, the US Labour and Commerce departments have warned that the closure of statistical agencies, in the event of a partial shutdown, could halt the scheduled releases of key economic indicators, including official employment data for September.

Daily digest market movers: Pound Sterling trades lower against its major peers

• The Pound Sterling underperforms its major peers, except North American currencies, on Tuesday. The British currency weakens as Bank of England (BoE) Deputy Governor Dave Ramsden has argued in favor of reducing interest rates amid growing United Kingdom (UK) labor market concerns. Ramsden is also confident that inflationary pressures will return to the central bank as interest rates are still restrictive.
• “We have seen the labour market continuing to loosen with wage growth normalising,” Ramsden said in a panel discussion organised by the European Central Bank (ECB) in Frankfurt on Monday, and added that "I [Ramsden] see that as supporting a continuation of the core disinflation process, which anchors his view on the inflation outlook," Reuters reported.
• BoE Ramsden’s support for interest rate cuts is unfavorable for the Pound Sterling, as he was among seven of nine Monetary Policy Committee (MPC) members who voted to hold policy rates steady at 4% in the September policy meeting.
• Meanwhile, UK Q2 Gross Domestic Product (GDP) data has come in stronger than previously estimated on an annual basis. The figures showed that the economy rose by 1.4% YoY, faster than the preliminary release of 1.2%. Quarter-on-quarter GDP growth remained in line with flash estimates of 0.3%.
• In Tuesday’s session, the major trigger for the GBP/USD pair will be the US JOLTS Job Openings data for August, which will be published at 14:00 GMT.  US employers are expected to have posted fresh 7.1 million jobs, in line with the prior reading of 7.18 million.

Technical Analysis: Pound Sterling gains to near 1.3450

The Pound Sterling gains marginally higher to near 1.3450 against the US Dollar on Tuesday. However, the near-term outlook for the Cable remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which trades around 1.3483.

The 14-day Relative Strength Index (RSI) rebounds from 40.00, currently at 46. The pair would remain sideways if the RSI is stable in the 40.00-60.00 range.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the September 17 high of 1.3726 will act as a key barrier.