• Pound Sterling versus USD ranges as investors await the US core PCE inflation data.
• If the US inflation data turns stubborn, GBP/USD will suffer.
• In the UK, BoE policymakers need more evidence of inflation easing to 2% before initiating rate cuts.

The Pound Sterling (GBP) trades with nominal gains against the US Dollar in Thursday’s European session. Market participants await the United States core Personal Consumption Expenditure Price Index (PCE) for January, which will be published at 13:30 GMT. Federal Reserve (Fed) policymakers closely track the underlying inflation data to prepare a fresh outlook on interest rates.

The GBP/USD pair oscillates inside Wednesday’s trading range as uncertainty over the timing of Bank of England (BoE) rate cuts keeps the Pound Sterling on the sidelines. BoE policymakers are reluctant to reduce interest rates early as it could stall progress in inflation, declining towards the 2% target, or price pressures could flare up again.

Daily Digest Market Movers: Pound Sterling consolidates amid a quiet market mood

• In a calm market environment, the pound sterling is trading lukewarmly around 1.2660 while investors await the release of the US core PCE Price Index for January.
• It is anticipated that the US core PCE Price Index data will increase by 0.4% every month, following a 0.2% increase in December. Investors expect the underlying inflation statistics to have slowed down from the previous figure of 2.9% per year to 2.8% annually.
• If the core PCE Price Index data proves to be stickier than anticipated, the US dollar will become more appealing. This would enable Federal Reserve decision-makers to err on the side of maintaining interest rates in the 5.25%–5.50% level for an extended amount of time.
• If the Fed continues to have a hawkish view on interest rates, the US dollar will draw in more foreign capital. During Thursday’s European session, the US Dollar Index (DXY), which measures the value of the greenback against six major currencies, is still somewhat weak at 103.80.
• The Fed’s favored inflation figures would significantly impact the market’s estimates for when rate reduction will occur.
• In general, investors anticipate that the British Bank would decrease interest rates later than the US Federal Reserve, which will help the pound sterling perform better than the US dollar.

• With core consumer price inflation in the UK at 5.1%—the highest among the Group of Seven economies—BoE officials would be forced to stick to their aggressive monetary policy stance for an extended amount of time.
• Deputy Governor Dave Ramsden of the Bank of England stated this week that he wants to wait and observe how long inflation will endure before changing the direction of monetary policy. Ramsden voted in favor of keeping interest rates at 5.25% during the most recent monetary policy meeting.
• Strong wage growth and strong service inflation are to blame for the UK’s persistent core inflation. However, due to a poor increase in food goods, annual shop price inflation dropped to 2.5% in February—the lowest level since March 2022—which appears to provide some comfort to households. The shop pricing index monitors food and non-food item price variations.

Technical Analysis: Pound Sterling remains sideways below 1.2700

The pound sterling fluctuates within a small range, centered at 1.2670. The downward-sloping border of the Descending Triangle pattern, which was constructed on a daily timescale and established from the high of December 28 at 1.2827, continues to present strong resistance for the GBP/USD pair. Plotting the horizontal support, however, begins from the low on December 13 at about 1.2500.

The creation of lower highs and flat lows indicates a minor downside bias among market players, but otherwise, a Descending Triangle pattern shows indecision.

The 20-day Exponential Moving Average (EMA), which is trading at 1.2650, is maintained by the pair. The 14-period Relative Strength Index (RSI), on the other hand, shows a significant decrease in volatility as it stays within the 40.00–60.00 range.

Conclusion

For investors, financial analysts, and currency traders, the performance of the pound sterling is intricately linked with interest rate changes. Staying attuned to central bank pronouncements, economic indicators, market analysis, and the use of robust financial tools is critical to making educated decisions in this dynamic landscape. By keeping a close watch on the Pound Sterling, market participants can capitalize on emerging opportunities and safeguard against the risks of unexpected shifts in interest rate policy.