In Wednesday’s London session, the Pound Sterling (GBP) grapples with uncertainty as market focus shifts towards the impending release of the United States Consumer Price Index (CPI) data for March, scheduled for publication at 12:30 GMT. Economists anticipate that US inflation will maintain a relatively high trajectory in March, attributed to rising oil prices, insurance costs, and rentals.
The prospect of heightened price pressures could alter market expectations regarding Federal Reserve (Fed) rate cuts, potentially pushing them towards the third quarter of this year. Conversely, softer-than-expected figures may reinforce speculation of rate cuts as early as June.
Domestically, Pound Sterling movement will be influenced by the United Kingdom’s monthly Gross Domestic Product (GDP) data and February’s factory data, slated for release on Friday. These key indicators will provide insights into the economy’s current state and the performance of the manufacturing sector, serving as leading indicators of overall demand. Weak data may bolster expectations for early rate cuts by the Bank of England (BoE), while better-than-expected figures could signal a return to economic recovery.
In light of the upcoming US inflation data, the Pound Sterling experiences some selling pressure as it attempts to breach the round-level resistance of 1.2700. Market participants await the outcome of the CPI report, which forecasts an acceleration in annual headline inflation to 3.4% and a deceleration in core inflation to 3.7%. Despite an expected monthly increase in inflation, it may fall short of convincing Fed policymakers that inflation is on track to meet the desired 2% target.
The US Dollar Index (DXY), tracking the greenback’s value against major currencies, rebounds to 104.15 amidst uncertainty surrounding the US inflation data. Investors keenly await clues on the timing of potential Fed interest rate adjustments.
On the domestic front, concerns over the rising cost of living prompt demand for rate cuts by the Bank of England. A recent survey by the Financial Conduct Authority (FCA) indicates a decrease in the number of individuals struggling with monthly expenses, albeit still higher than pre-pandemic levels. Market speculation mounts regarding BoE rate cuts post-June, particularly fueled by Governor Andrew Bailey’s acknowledgment of market expectations for multiple rate cuts this year.
