- The Pound Sterling refreshes a weekly low near 1.2670 amid a risk-averse mood.
- The UK Inflation data will influence market expectations for BoE rate cuts in August.
- Investors see the Fed and the BoE holding interest rates at their current levels.
The Pound Sterling (GBP) extends its losing streak into the fourth consecutive trading session on Tuesday, with investors adopting a risk-averse stance amid a significant week for central bank activity. The GBP/USD pair hits a fresh weekly low ahead of interest rate decisions from both the Federal Reserve (Fed) and the Bank of England (BoE). While expectations lean towards both central banks maintaining the status quo, investors are keenly awaiting any hints regarding the future interest rate trajectory.
In the United Kingdom, all eyes are on the BoE’s monetary policy statement for clues about potential timing for interest rate adjustments. UK headline inflation has notably eased from double-digit figures to 4%, largely attributed to the BoE’s prolonged period of elevated interest rates over the past two years. This sustained high-interest rate environment has also contributed to a significant slowdown in economic growth, fueling expectations for rate cuts as soon as August.
Ahead of the BoE’s policy decision, market participants are closely monitoring the release of the UK Consumer Price Index (CPI) data for February on Wednesday. If the inflation data comes in softer than anticipated, expectations for earlier rate cuts by the BoE could intensify. Conversely, persistent inflation figures will only deepen uncertainty surrounding the likelihood of rate adjustments. Typically, the Pound Sterling tends to strengthen when inflation data surpasses expectations, indicating a potential continuation of a hawkish narrative from BoE policymakers.
Daily digest market movers: Pound Sterling remains on backfoot on dismal market mood
- The Pound Sterling slips below the key support level of 1.2700 as subdued market sentiment diminishes the appeal of risk-sensitive assets. Investors are exhibiting caution ahead of a series of central bank meetings scheduled for this week.
- There’s uncertainty regarding the likelihood of the Fed initiating rate cuts in June, previously widely expected by markets, due to recent high inflation data. This has dampened enthusiasm for risk assets, prompting a significant increase in demand for safe-haven assets. The US Dollar Index (DXY), which gauges the US Dollar’s strength against six major currencies, continues its upward trend for the fourth consecutive trading session, reaching 104.00. Investors are hopeful that the Fed will maintain a hawkish stance following its decision to leave interest rates unchanged within the range of 5.25%-5.50% on Wednesday.
- This week, market attention will be focused on the Bank of England’s interest rate decision, slated for Thursday. The BoE is widely expected to maintain interest rates at 5.25%. Consequently, investors will closely analyze any indications regarding the timing of potential interest rate reductions by the BoE. Currently, market consensus suggests that the BoE may commence rate cuts during its August policy meeting.
- Expectations for a rate cut in August are likely to be influenced by the release of the United Kingdom’s CPI data for February, scheduled for Wednesday. Analysts forecast a decrease in annual headline inflation to 3.6% from January’s 4.0%. Similarly, core inflation, excluding volatile food and energy prices, is anticipated to decelerate to 4.6% from 5.1%. Economists also predict a notable increase in monthly headline CPI, with a projected growth of 0.7% following a decline of 0.6% in January.
Technical Analysis: Pound Sterling refreshes weekly low at 1.2670
The Pound Sterling has dipped below the breakout zone of the Descending Triangle, situated around 1.2700, causing uncertainty in near-term demand for the GBP/USD pair. It has also fallen beneath the 20-day Exponential Moving Average (EMA), which hovers around 1.2730.
Looking ahead, the downward-sloping boundary of the Descending Triangle pattern could provide support for the Pound Sterling, while a significant barrier lies at approximately 1.2900, representing a seven-month high.
The 14-period Relative Strength Index (RSI) has retreated into the 40.00-60.00 range, signaling a notable contraction in volatility.
