In the London trading session on Thursday, the Pound Sterling (GBP) continued its decline against the US Dollar (USD), reaching 1.2470. The GBP/USD pair faces downward pressure amidst cautious sentiment preceding the Bank of England‘s (BoE) impending interest rate announcement at 11:00 GMT and a subdued market atmosphere.
Market expectations lean towards the BoE maintaining the current borrowing rates at 5.25%, marking the sixth consecutive meeting without a change. The focus now shifts to the BoE’s interest rate guidance, pivotal for determining the Pound Sterling’s next trajectory.
Analysts anticipate a potentially dovish stance from the BoE regarding the interest rate outlook, given ongoing declines in UK price pressures. These declines suggest a path toward inflation returning to the desired 2% target. The BoE’s attention remains fixated on wage growth, which significantly exceeds the rate necessary for inflation to meet the 2% target.
Market sentiment regarding the BoE’s decision remains mixed, with expectations of most Monetary Policy Committee (MPC) members supporting rate stability, while some anticipate a stance favoring rate cuts, notably from policymaker Swati Dhingra. Deputy Governor Dave Ramsden’s position on interest rates remains uncertain, with previous comments indicating optimism regarding disinflation progress.
The Pound Sterling’s weakening trend is exacerbated by global market sentiment, influenced by hawkish signals from Federal Reserve (Fed) policymakers. With S&P 500 futures recording losses and a decline in investor risk appetite, the US Dollar’s appeal strengthens, as indicated by the US Dollar Index (DXY) hovering near 105.60.
Federal Reserve policymakers, including Boston Fed Bank President Susan Collins and Minneapolis Fed Bank President Neel Kashkari, have emphasized the need to maintain current interest rates until sustained confidence in reaching the 2% inflation target is achieved. Collins highlighted recent inflation upticks, underlining the importance of aligning demand with supply to ensure durable inflation returns.
Investor attention remains on Fed speakers’ interest rate guidance in the absence of significant US economic data. In the UK, focus shifts to upcoming March and preliminary Q1 Gross Domestic Product (GDP) data, with economists anticipating a 0.4% expansion in the January-March period, indicating a shallow technical recession in the second half of 2023.
Additionally, investors await monthly factory data and preliminary Q1 Total Business Investment figures, providing insights into domestic and overseas demand.
Technically, the Pound Sterling faces further pressure as it slips below the 20-day Exponential Moving Average (EMA) around 1.2510, amidst uncertainties in the market indicated by the 14-period Relative Strength Index (RSI) oscillating in the 40.00-60.00 range.
