Pound Sterling advances on improved market sentiment – Crypto News – Crypto News
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Pound Sterling stabilizes above 1.25 on cheerful mood, UK Employment in focus Pound Sterling stabilizes above 1.25 on cheerful mood, UK Employment in focus

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Pound Sterling advances on improved market sentiment – Crypto News

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  • Pound Sterling has stretched its upside recovery as the appeal of risky assets improves.
  • UK recession fears have faded on prospects of early BoE rate cuts.
  • Fed policymakers refuse to provide timing of rate cuts amid uncertainty over inflation.

The Pound Sterling (GBP) shows bullish moves in the European session on Wednesday as the appeal for risk-perceived assets has improved significantly. The GBP/USD rebounds strongly despite increasing prospects of early rate cuts by the Bank of England (BoeE). After BoE Chief Economist Huw Pill, BoE Deputy Governor Sarah Breeden has also emphasized how long interest rates should remain restricted. Recent commentaries from BoE policymakers show that the central bank could begin reducing interest rates sooner.

The UK’s construction and service sectors have rebounded as prospects of rate cuts by the BoE have deepened amid easing price pressures. This has improved the confidence of business enterprises in the economic outlook.

The US Dollar has come under pressure despite the Federal Reserve (Fed) now expecting not to rush rate cuts amid a resilient United States economy. Fed policymakers continue to ignore discussions about the timing of rate cuts as the inflation situation is still uncertain due to robust labor market conditions and retail demand.

Daily Digest Market Movers: Pound Sterling rises while US Dollar corrects from 11-week high 

  • Pound Sterling has extended its upside above 1.2600 as the United Kingdom’s economic prospects improve despite the Bank of England (BoE) maintaining interest rates in the restrictive trajectory.
  • After robust Services PMI data, UK S&P Global/CIPS Construction PMI rose sharply to 48.8 vs. expectations of 47.3 and the prior reading of 46.8. 
  • UK construction companies have become more optimistic about fading recession risks and rate cuts by the BoE amid easing price pressures.
  • Deepening prospects of loosening financial conditions and improving economic outlook have improved business optimism.
  • The odds of early rate cuts by the BoE escalated after a dovish guidance on interest rates by Bank of England Chief Economist Huw Pill. 
  • Huw Pill said on Monday that the central bank is now focusing on “when” rather than “if” it will start lowering its benchmark interest rates. Pill added inflation indicators are far from endorsing the commencement of an easy policy but the underlying inflation is not needed to return to 2% for rate cuts.
  • Also, Stephen Millard, a NIESR deputy director, said the good news for 2024 was that wages would continue to rise while inflation fell quickly towards the BoE’s 2% target, probably allowing the central bank to start cutting interest rates in May, Reuters reported.
  • For fresh guidance on interest rates, investors will keenly observe how the labor market and service inflation will shape up.
  • The US Dollar Index (DXY) has come under pressure despite investors losing conviction over rate cuts by the Federal Reserve in May.
  • As per the CME Fedwatch tool, traders see a 53% chance for a rate cut by 25 basis points (bps) in May, which has come down as policymakers push back expectations of early rate cuts.

Technical Analysis: Pound Sterling aims stabilization above 1.2600

Pound Sterling advances above the round-level resistance of 1.2600 as the risk-appetite of the market participants is improving again. The GBP/USD pair recovers strongly after discovering buying interest near a seven-week low around 1.2500. The near-term outlook of the Cable is still downbeat as it is trading below the 20 and 50-day Exponential Moving Averages (EMAs), which trade around 1.2664 and 1.2634 respectively.

BoE FAQs

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

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