Pound Sterling rises against USD after Bessent’s appointment as Treasury Secretary

The Pound Sterling (GBP) bounces back strongly at the start of the week and outperforms its major peers after facing a sharp sell-off on Friday. The British currency declined on Friday after the United Kingdom (UK) Retail Sales contracted at a faster-than-expected pace in October and the flash S&P Global/CIPS Composite Purchasing Managers’ Index (PMI) for November came in below the 50.0 threshold for the first time since October 2023.

The major reason for the recovery in the Pound Sterling appears to be firm market expectations that the Bank of England (BoE) could be one of the central banks from Western nations that will follow a more gradual policy-easing path. Traders expect the BoE to leave interest rates. unchanged at 4.75% in the December meeting and prices in 75 basis points (bps) cut to 4% by 2025, Reuters reports.

Monthly Retail Sales declined by 0.7% as retailers reported that shoppers held back on spending ahead of the new government's first tax and spending budget on Oct. 30, according to the Office for National Statistics (ONS).

Meanwhile, the Composite PMI fell below the 50.0 level that separates expansion from contraction as activity in the manufacturing sector declined and the service sector output stagnated. “The first survey on the health of the economy after the Budget makes for gloomy reading”, said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. However, BoE Deputy Governor Clare Lombardelli warned that we should not take a strong signal from a single release, said in his speech at the 3rd Bank of England Watchers' Conference. On the interest rate outlook, Lombardelli supports a gradual policy-easing approach, and he is worried about upside risk to price press pressures where wage growth normalizes to 3.5%-4% and inflation around 3%.

On the contrary, the commentary from BoE external policy member Swati Dhingra appears to support a less gradual interest rate cut approach as she doesn't see the UK as an outlier for inflation among advanced economies. Dhingra added that the policy is weighing on investment.

Daily digest market movers: Pound Sterling gains as US Dollar declines after Trump's nomination

• The Pound Sterling opens strongly against the US Dollar (USD) on Monday, trying to extend its recovery above the round-level resistance of 1.2600. The GBP/USD gains as the US Dollar starts the week on a negative note, with the US Dollar Index (DXY) trading 0.5% down near 107.00.
• 10-year US Treasury yields plummet to near 4.33% as investors digest President-elect Donald Trump picking Scott Bessent as Treasury Secretary to oversee economic and tax policies.  Contrary to market reaction, some analysts seem to be satisfied with the appointment: “There was some level of anxiety priced in that Trump was going to pick someone who was not good or some kind of absolute tariff fanatic, so this is a very good answer for Wall Street,” analysts at Tallbacken Capital Advisors said.
• Bessent said in an interview with the Wall Street Journal (WSJ) that he would focus on putting tariffs into action, cutting spending, and maintaining the status of the Greenback as the world's reserve currency.
• Upbeat flash S&P Global PMI data for November released on Friday showed an improved economic outlook in the United States.  The Composite PMI rose at a faster pace to 55.3, the highest in 31 months, as contraction in the manufacturing sector lost steam and there was a faster-than-expected expansion in the services sector.
• Traders are divided over the Federal Reserve’s (Fed) action in the December monetary policy meeting. The probability of the Fed cutting interest rates by 25 bps to 4.25%-4.50% in December is at 56%, according to the CME FedWatch tool, while the remaining 44% expects rates to remain unchanged.

Technical Analysis: Pound Sterling struggles to climb above 1.2600

The Pound Sterling rebounds after sliding below the psychological support of 1.2500 against the US Dollar. The GBP/USD pair recovers but market participants could use this rebound to build fresh shorts as the overall trend remains bearish, with 200-day Exponential Moving Average (EMA) trading near 1.2800. 

The 14-day Relative Strength Index (RSI) rebounded after turning oversold but remains inside the 20.00-40.00 range, keeping the downside momentum intact.

Looking down, the pair is expected to find a cushion near May’s low of 1.2446. On the upside, the November 20 high at around 1.2715 will act as key resistance.