Pound Sterling rebounds while broader outlook is bearish

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The Pound Sterling (GBP) recovers in the European session on Monday due to a decent improvement in the UK’s S&P Global/CIPS Services PMI for January. The economic data rose to 54.3, better than expectations of 53.8 and the former reading of 53.4. The agency reported that a robust inflow of fresh orders, strong hiring in the last six months and deepening prospects of rate cuts by the Bank of England (BoE) led to a strong uptick in the Services PMI.

Supportive domestic factors back a sharp recovery in the Pound Sterling. However, the near-term outlook for risk-sensitive assets is bearish. The appeal of safe-haven assets is broadly upbeat as investors see the Federal Reserve (Fed) not rushing to cut interest rates. Receding risks of a recession in the United States due to strong labor and retail demand are allowing plenty of time for Fed policymakers to decide on rate cuts.

Pound Sterling delivers a recovery move from a seven-week low of 1.2520. The GBP/USD pair is advancing to test the breakdown of the Descending Triangle chart pattern formed on the daily time frame. The Cable could face an intense sell-off after a soft test of the breakdown region near 1.2600.

The 14-period Relative Strength Index (RSI) has slipped below 40.00 for the first time in three months. More downside is possible amid absence of divergence and oversold signals.

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