In Wednesday’s London session, the Pound Sterling (GBP) reached a fresh weekly high, touching the significant round-level resistance of 1.2600 against the US Dollar (USD). The GBP/USD pair maintained its strength, buoyed by a weakening US Dollar ahead of the release of the United States Consumer Price Index (CPI) data for April at 12:30 GMT. Concurrently, the US Dollar Index (DXY), tracking the Greenback’s value against major currencies, slipped below the crucial support of 105.00.
Economists anticipate monthly headline inflation to hold steady at 0.4%, while the core CPI, excluding volatile food and energy prices, is expected to have risen at a slower pace of 0.3% in April compared to March’s reading of 0.4%. Annual headline CPI is forecasted to soften to 3.4% from March’s 3.5%, with core inflation decelerating to 3.6% from the prior reading of 3.8%.
The forthcoming inflation data will significantly influence speculation regarding Federal Reserve (Fed) interest-rate adjustments. Presently, financial markets anticipate the Fed to initiate interest-rate cuts at the September meeting. In addition to inflation figures, investors will scrutinize the monthly Retail Sales for April, providing insights into household spending trends and implications for the inflation outlook. The Retail Sales data is projected to reflect a slower growth rate of 0.4% compared to March’s 0.7% increase.
Daily Digest: Pound Sterling Strengthens Amid Multiple Tailwinds
The Pound Sterling sustained its winning streak for the third consecutive trading session on Wednesday, leveraging the subdued US Dollar and uncertainty surrounding potential Bank of England (BoE) interest-rate adjustments. Investor expectations currently lean towards the central bank initiating rate cuts starting from the June meeting.
The recently released United Kingdom Employment report for the three months ending March revealed deteriorating job market conditions, with the Unemployment Rate reaching 4.3%, as anticipated. While easing labor market conditions typically prompt expectations of a dovish monetary policy stance, steady wage growth mitigated the impact of rising joblessness.
BoE policymakers express concerns over elevated service inflation, which could impede progress in the disinflation process. Service inflation, largely influenced by wage growth, appears notably stronger than necessary for inflation to reach the desired rate of 2%. BoE Chief Economist Huw Pill underscored the need for a restrained monetary policy stance, exerting downward pressure on domestic inflation. Regarding rate adjustments, Pill suggested that confidence may build over the summer to consider lowering interest rates.
Technical Analysis: Pound Sterling Tests 1.2600 Resistance Level
The Pound Sterling continues its upward trajectory towards the crucial resistance level of 1.2600 against the US Dollar. The GBP/USD pair has surpassed major resistance traced back to the low of December 8 at 1.2500. The near-term outlook for the Cable appears favorable as it maintains a position above the 20-day Exponential Moving Average (EMA) around 1.2540, retracing 50% of losses from a 10-month high around 1.2900.
The 14-period Relative Strength Index (RSI) approaches the 60.00 barrier, indicating potential bullish momentum upon a decisive breakthrough of this level.
