London, February 20, 2024 – The Pound Sterling (GBP) traded in a sideways pattern during Tuesday’s European session, reflecting a slightly downbeat market sentiment as investors await the release of the Federal Reserve Open Market Committee (FOMC) minutes, which are anticipated to offer insights into the future of interest rates. Meanwhile, Bank of England (BoE) Governor Andrew Bailey and fellow policymakers are set to testify before the United Kingdom Parliament today, providing guidance on inflation and interest rates.
Investors anticipate a continuation of a hawkish stance from Bailey and his colleagues, driven by concerns about achieving sustainable price stability. Factors such as robust wage growth, persistent service inflation, and solid household spending suggest a persistent inflation outlook, prompting the BoE to adopt a cautious approach before considering rate cuts. A hawkish guidance from BoE policymakers may boost the appeal of the Pound Sterling.
This week, the trajectory of the GBP/USD pair will be influenced by the preliminary S&P Global Manufacturing and Services PMI for February, scheduled for release on Thursday.
Pound Sterling Remains Cautious Ahead of FOMC Minutes
The Pound Sterling remains cautiously positioned below 1.2600 as market sentiment remains subdued.
Key Points:
The Pound Sterling’s direction hinges on commentaries from Bank of England Governor Andrew Bailey and other Monetary Policy Committee (MPC) members, who will address Parliament’s Treasury Committee on inflation and the interest rate outlook.
Expectations are for Bailey and his colleagues to maintain a hawkish narrative on interest rates, given the momentum in service inflation and wage growth surpassing levels required to bring inflation down to the 2% target.
Robust Retail Sales data for January suggests the diminishing impact of the BoE’s hawkish stance on interest rates, with signs of increased household spending supporting the UK economy’s recovery from recession.
BoE Chief Economist Huw Pill advises patience on rate cuts, citing insufficient current inflation data to guarantee a sustainable decline to the 2% target.
Weekly data from the Commodity Futures Trading Commission (CFTC) reveals an increase in speculators’ bullish sterling positions, signaling a strengthened near-term outlook for the Pound Sterling.
Investors this week will focus on the preliminary S&P Global/CIPS Manufacturing and Services PMI for January, with expectations of a rise in Manufacturing PMI to 47.5 and a drop in Services PMI to 54.1.
On the US front, the US Dollar Index rebounded to 104.40 amid uncertainty ahead of the FOMC minutes, showing policymakers’ confidence in the inflation trajectory despite higher-than-expected consumer price inflation and Producer Price Index (PPI) data for January. The USD Index struggles to achieve a robust recovery in the face of this uncertainty.
