Pound Sterling rises as UK Labour win prompts political stability, US NFP in focus

• The Pound Sterling performs strongly, as Keir Starmer’s outright majority win as UK PM has brought stability on the political front.
• Investors expect the BoE to begin reducing interest rates from August.
• The US Dollar will dance to the tunes of US NFP data for June.

The Pound Sterling (GBP) exhibits sheer strength against major peers, except the Japanese Yen (JPY), in FridayÂ’s London session. The British currency performs strongly as United Kingdom (UK) Prime Minister Rishi Sunak-led-Conservative Party suffered a defeat after remaining in power since 2010 from the Keir Starmer-led-Labour Party in parliamentary elections on Thursday.

Investors expect that an absolute majority of the Labour Party has significantly improved the Pound SterlingÂ’s appeal. A political partyÂ’s outright majority win is considered favorable for its financial markets, unlike when the Tories were in power.

Also, the Pound Sterling would outperform strongly against currencies from the European Union (EU) and the United States (US), which are expected to face pressure due to political uncertainty.

On the monetary policy front, investors expect the Bank of England (BoE) to start cutting interest rates from the August meeting. The next trigger for the Pound Sterling will be the monthly Gross Domestic Product (GDP) and factory data for May, which will be published on Thursday, July 11.

Daily digest market movers: Pound Sterling adds more gains against US Dollar ahead of US NFP

• The Pound Sterling extends its upside to near 1.2780 against the US Dollar (USD) in FridayÂ’s European session. The GBP/USD pair posts a fresh three-week high and is expected to rally further towards the round-level resistance of 1.2800 amid sheer sell-off in the US Dollar.
• The US Dollar Index (DXY), which tracks the GreenbackÂ’s value against six major currencies, slides further to near the crucial support of 105.00. The US DollarÂ’s appeal becomes vulnerable as the confidence of investors in the Federal Reserve (Fed) to begin reducing interest rates from the September meeting has increased. 
• According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the probability of rate cuts in September has improved to 74.4% from 64% recorded a week ago. The data also shows that the Fed will deliver subsequent rate cuts in November or December.
• In FridayÂ’s session, investors will focus on the United States (US) Nonfarm Payrolls (NFP) data for June, which will be published at 12:30 GMT. The official labor market data will significantly influence market speculation about Fed rate cuts in September.
• The NFP report is expected to show that employers added 190K payrolls, significantly lower than the prior release of 272K. The Unemployment Rate is estimated to have remained steady at 4%. Investors will also pay attention to the Average Hourly Earnings data, which gauges wage growth momentum. Annual Average Hourly Earnings are forecasted to have decelerated to 3.9% from 4.1% in May. On a monthly basis, the wage growth measure is estimated to have risen at a slower pace of 0.3% from the prior month of 0.4%.
• Stronger-than-expected wage growth and payrolls data would weaken expectations that the Federal Reserve (Fed) will start reducing interest rates in September, while weak numbers will boost them.

Technical Analysis: Pound Sterling trades close to 78.6% Fibo retracement

The Pound Sterling posts a fresh three-week high slightly below 1.2800 against the US Dollar. The GBP/USD pair strengthens after breaking above the 61.8% Fibonacci retracement at 1.2670, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300. The Cable has now reached the 78.6% Fibonacci retracement at 1.2770.

The pair rises above the 20-day and 50-day Exponential Moving Averages (EMAs) near 1.2695 and 1.2675, respectively, suggesting that the near-term outlook is bullish.

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