In Monday’s European session, the Pound Sterling (GBP) finds itself trading within a narrow range against the US Dollar (USD) as investors await further insights into the Bank of England‘s (BoE) stance on interest rates. The GBP/USD struggles for direction amid ongoing uncertainty surrounding the timing of rate cuts by both the BoE and the Federal Reserve (Fed).
Policymakers from the BoE and the Fed remain cautious about providing details on the timing of potential rate cuts, emphasizing the need for more evidence that inflation will align with the 2% target. In the United Kingdom, wage growth and service inflation are notably higher, posing a challenge to achieving price stability.
The US Dollar Index (DXY), measuring the USD against six major currencies, hovers around 104.00 amid a week filled with significant economic data. Investors are particularly attentive to the core Personal Consumption Expenditure price index (PCE) data for January, which is expected to offer crucial insights into the future of interest rates.
Key points from the daily digest:
Pound Sterling in Consolidation: GBP consolidates around 1.2660 as market expectations for early rate cuts diminish due to robust wage growth. BoE Deputy Governor Ben Broadbent highlights strong wage growth momentum, double the rate required to bring down inflation to the 2% target.
BoE Chief Economist’s Guidance: Investors eagerly await BoE Chief Economist Huw Pill’s commentary on interest rates at 11:00 GMT, expecting a reiteration of the need to maintain rates at 5.25% until convinced of sustainable inflation return.
US Dollar’s Subdued Performance: Despite expectations that the Federal Reserve won‘t cut rates in the upcoming meetings, the US Dollar remains subdued. New York Federal Reserve President John Williams indicates rate cuts are still on track later in the year.
Technical Analysis: Pound Sterling trades within a Descending Triangle pattern, indicating a volatility contraction. The pair maintains support at 1.2500 and stays above the 20 and 50-day Exponential Moving Averages. The Relative Strength Index (RSI) suggests indecisiveness among market participants.
While improving business optimism and economic outlook offer relief for BoE policymakers, concerns over a cooling labor market persist. Job advertisements in the UK were significantly down in January, suggesting challenges in the job market.
As investors navigate these uncertainties, technical analysis points to a potential breakout as the GBP/USD remains confined within a descending triangle pattern, with key support at 1.2500. The RSI signals indecision among traders, emphasizing the importance of upcoming developments in guiding market direction.
