- The Pound Sterling demonstrates resilience against the US Dollar, particularly as the US Unemployment Rate climbs to 3.9%.
- Bank of England (BoE) policymakers advocate for a sustainable decrease in inflation to the 2% threshold before considering a shift towards policy normalization.
- Federal Reserve Chair Jerome Powell anticipates that the central bank is nearing a point where it can express confidence in the expectation that inflation will subside to the targeted level.
In the early American session on Friday, the Pound Sterling (GBP) gains strength as market participants exhibit increased risk appetite. The positive sentiment towards risk-sensitive assets is reinforced by the recent report from the United States Bureau of Labor Statistics (BLS), revealing soft wage growth and a significant rise in the Unemployment Rate in February.
The GBP/USD pair remains attractive, largely driven by the prevailing expectation in the market that the Federal Reserve (Fed) will implement interest rate cuts ahead of the Bank of England (BoE). This potential reduction in policy divergence between the two central banks adds to the upbeat outlook.
While the consensus points towards a Fed rate cut in June, investors anticipate the BoE to follow suit from August onwards. Notably, inflation in the UK continues to outpace that of other developed countries in the Group of Seven (G-7), primarily fueled by robust wage growth contributing to persistent services inflation.
Looking ahead, the UK’s Average Earnings data for the three months ending in January, scheduled for release next week, will offer fresh insights into the inflation outlook. Should wage growth maintain its robust momentum, it could further temper expectations of rate cuts. BoE policymakers caution that wage growth remains nearly double the required threshold for inflation to return to the 2% target.
Daily digest market movers: Pound Sterling strengthens on higher US Unemployment data
- Pound Sterling reaches a seven-month high at 1.2840 in a risk-on market sentiment.
- US economists predict a gain of 200K jobs in February, below January’s robust figure of 353K, with an anticipated Unemployment Rate stability at 3.7%.
- Investors focus on Average Hourly Earnings data for insights into the inflation outlook amid expectations of high market volatility.
- Market expectations for a June Federal Reserve rate cut remain steady, influenced by Powell’s less hawkish tone during Congress testimony.
- GBP/USD eyes weekly gains, largely attributed to the weakened US Dollar appeal, with upcoming focus on UK labor market data.
- The Bank of England’s (BoE) potential interest rate cut is anticipated around August, pending confidence in sustainable inflation return to the 2% target.
- BoE policymakers refrain from specifying a timeline for rate cuts, emphasizing the need for confidence in inflation recovery.
- UK house prices continue to rise for a fifth consecutive month, driven by falling mortgage rates and expectations of impending rate cuts. The Halifax reports a 0.4% month-on-month increase in house prices for February.
Technical Analysis: Pound Sterling rallies to 1.2900
The Pound Sterling hits a seven-month peak, reaching approximately 1.29000. The GBP/USD pair experiences a surge following the upward breakout of the Descending Triangle evident on the daily time frame, leading to extended gains beyond typical levels.
The 20-day and 50-day Exponential Moving Averages (EMAs), both sloping upwards at 1.2690 and 1.2660, respectively, signal the potential for further upward movement.
With the 14-period Relative Strength Index (RSI) climbing to 70.00, it signifies the presence of a bullish momentum in the current market conditions.
