In Thursday’s European session, the Pound Sterling (GBP) continues its ascent, marching towards weekly highs against the US Dollar (USD) amidst a positive market sentiment. The GBP/USD pair demonstrates resilience even after Bank of England (BoE) policymaker Swati Dhingra expressed concerns about potential downside risks to the UK economy due to elevated interest rates.
During her speech at the Market News International Connect event on Wednesday, Dhingra highlighted that demand prospects were “weak and less resilient” than previous forecasts. She emphasized that higher mortgage costs and rental prices in 2023 had impacted household spending, leading to subdued Retail Sales.
Typically, warnings from BoE policymakers about prolonged high-interest rates could trigger foreign outflows from the Pound Sterling, but the currency remains robust amid prevailing market optimism.
Investors are now anticipating the release of February’s preliminary S&P Global PMI data for both the United Kingdom and the United States, seeking further insights into the economic outlook.
Key Points:
Market Dynamics: Pound Sterling rises, approaching a weekly high near 1.2670, buoyed by improved investor risk appetite. The US Dollar Index hits a two-week low slightly below 103.80.
BoE Caution: Despite Swati Dhingra’s caution about the cost of living standards due to sustained interest rates at 5.25%, Pound Sterling advances. Dhingra warned of a potential hard landing if rate cuts are delayed, adding her vote for a rate cut in February.
Market Expectations: BoE Governor Andrew Bailey’s statement that the central bank can reduce interest rates before inflation hits the 2% target has slightly increased expectations for BoE rate cuts.
Upcoming Focus: Investors await the preliminary S&P Global/CIPS PMI data for February. Manufacturing PMI is expected to be 47.5, slightly higher than the previous 47.0, while Services PMI is anticipated to be 54.1, a decrease from the prior reading of 54.3.
Technical Analysis: The GBP/USD pair approaches the weekly high at 1.2670, extending its winning streak for a third trading session. The overall trend remains sideways within a Descending Triangle pattern, indicating a slight negative bias. The pair has surpassed the 20-day and 50-day EMAs, with the RSI indicating market indecisiveness.
Despite cautious sentiments from BoE, the Pound Sterling’s strength persists, poised to challenge weekly highs as market participants eagerly await economic data for further direction.
