Pound Sterling rallies ahead of US Inflation, UK factory data – Crypto News – Crypto News
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Pound Sterling dives further as soft UK inflation fades fat rate hike odds Pound Sterling dives further as soft UK inflation fades fat rate hike odds

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Pound Sterling rallies ahead of US Inflation, UK factory data – Crypto News

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  • Pound Sterling has stabilized above 1.2700 on upbeat market sentiment.
  • The release of UK factory data, if upbeat, would ease fears of a technical recession.
  • The US Dollar faces intense selling pressure ahead of US Inflation data.

The Pound Sterling (GBP) has extended its upside, capitalizing on improved market sentiment and an absence of commentary hinting at interest rate cuts from any Bank of England (BoE) policymakers. 

GBP/USD has printed a fresh weekly high as investors have ignored uncertainty associated with United States Consumer Price Index (CPI) data, which will be published at 13:30 GMT. Deepening confidence of investors toward rate cuts by the Federal Reserve (Fed) from March is maintaining a cheerful market mood.

Further action in the Pound Sterling will be guided by the UK factory data, which is due to be released on Friday. Last month, UK Finance Minister Jeremy Hunt commented that the economy is not as bad as revised Gross Domestic Product (GDP) numbers for the third quarter would suggest. The economic data is expected to remain upbeat but risks of a technical recession are still high as the BoE forecasted a stagnant performance in the last quarter of 2023.

Daily Digest Market Movers: Pound Sterling capitalizes on risk-on mood

  • Pound Sterling prints a fresh weekly high at 1.2770. Risk-perceived assets have gained traction as the market mood is quite upbeat ahead of the United States inflation data for December.
  • The headline inflation figure is expected to show an annual rise of 3.2%, slightly higher than the former reading of 3.1%. Meanwhile, the core inflation that strips off volatile food and Oil prices is seen softening to 3.8% from the prior reading of 4.0% in the same period.
  • Monthly headline CPI is estimated to have grown by 0.2% from 0.1% in November while the core inflation rate is estimated to have risen at a steady pace of 0.3%.
  • Market participants will keenly watch the inflation result as it will provide the basis for policy guidance on interest rates provided by Federal Reserve (Fed) policymakers in their monetary policy meeting on January 31.
  • The Fed is widely anticipated to keep interest rates unchanged at 5.25-5.50%. However, investors will be looking for cues about a possible reduction in interest rates from March.
  • A sticky inflation report would dial down bets in favour of rate cuts from March.
  • On the domestic front, the Pound Sterling will be guided by the factory and Gross Domestic Product (GDP) data for November, which will be published on Friday.
  • Annual Manufacturing and Industrial Production data are forecasted to grow by 1.7% and 0.7% respectively. The monthly data is projected to rise by 0.3%. Monthly GDP is seen expanding by 0.2% after shrinking by 0.3% in November.
  • Upbeat factory data may trim fears of a technical recession in the UK economy.
  • The Bank of England continues to struggle, caught between high price pressures and deepening recession fears.
  • On Wednesday, BoE Governor Andrew Bailey emphasized on bringing inflation back to the 2% target. While comparing the current scenario with the global financial crisis, Bailey said UK households with mortgages are nowhere near as stretched as during the subprime crisis. He added that incomes of households have risen in recent months.
  • The US Dollar Index (DXY) declines toward 102.20 as investors seem confident about steep rate cuts this year despite steady labor market conditions.

Technical Analysis: Pound Sterling aims stability above 61.8% Fibo retracement

Pound Sterling refreshes weekly high near 1.2770 as the risk-appetite of the market participants has improved ahead of US inflation data. The GBP/USD pair aims at stability above the 61.8% Fibonacci retracement at 1.2710 (of the move from 13 July 2023 high at 1.3142 to 4 October 2023 low at 1.2037). The overall trend is quite bullish as all short-to-long term Exponential Moving Averages (EMAs) are sloping higher.

The 14-period Relative Strength Index (RSI) is hovering around 60.00. A decisive break above the same will trigger a bullish momentum.

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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