Pound Sterling tumbles as soft UK Inflation data prompt BoE rate-cut prospects – Crypto News – Crypto News
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Pound Sterling tumbles as soft UK Inflation data prompt BoE rate-cut prospects – Crypto News

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  • Pound Sterling drops sharply as UK headline inflation deflates significantly in January.
  • Soft UK CPI data has propelled BoE’s rate-cut bets.
  • Stubborn US inflation data has pushed back Fed rate-cut hopes.

The Pound Sterling (GBP) faces an intense sell-off in Wednesday’s early European session as the United Kingdom Office for National Statistics (ONS) has reported softer-than-anticipated inflation data for January. Annual headline and core Consumer Price Index (CPI) rose steadily by 4.0% and 5.1%, respectively, while the monthly headline figure deflated significantly by 0.6%.

Surprisingly soft inflation report and a moderate growth in Average Earnings are expected to allow Bank of England (BoE) policymakers to consider early rate cuts than market participants had anticipated earlier.

Last week, BoE Deputy Governor Sarah Breeden said rate cuts will be based on how inflation and wage growth will evolve. The Pound Sterling tends to face foreign flows if expectations for BoE’s dovish bets escalate.

The GBP/USD pair is expected to remain in the negative trajectory due to softening consumer price inflation and dismal market sentiment. The broader appeal for safe-haven assets improves as sticky United States inflation data push back expectations for a rate-cut decision by the Federal Reserve (Fed) in the May monetary policy meeting. Fed policymakers lack evidence to build confidence over inflation declining sustainably towards the 2% target. This has boosted the US Dollar as a hawkish narrative by the Fed tends to attract more foreign inflows.

Daily Digest Market Movers: Pound Sterling falls vertically while US Dollar consolidates

  • Pound Sterling resumes its downside journey as the United Kingdom ONS has reported a soft inflation report for January.
  • The annual headline and core inflation grew steadily at 4.0% and 5.1%, respectively. However, investors anticipated that the headline and core CPI had accelerated to 4.2% and 5.1%, respectively.
  • The monthly headline inflation deflated at a robust pace of 0.6% against the consensus of 0.3%. In December, the economic data was expanded by 0.4%.
  • A sharp decline in monthly inflation data is expected to prompt expectations of early rate cuts by the Bank of England.
  • A soft inflation report has neutralized decent labor demand and moderate growth in Average Earnings data for three months ending December, released on Tuesday.
  • The Unemployment Rate fell sharply to 3.8% from the consensus of 4.0% and the former release of 4.2%.
  • Annual Earnings including bonuses grew by the smallest pace of 5.8% since three months ending July 2022, while investors projected a slower wage growth of 5.6%.
  • On Tuesday, the GBP/USD pair witnessed an intense sell-off after the United States Bureau of Labor Statistics (BLS) released a stubborn inflation report for January.
  • The US core inflation that strips off volatile food and oil prices rose steadily by 3.9%, while investors anticipated a decline to 3.7%.
  • Persistent price pressures cooled down expectations of Federal Reserve rate cuts in May.
  • The US Dollar Index (DXY) remains subdued in the Asian session but more upside remains favored due to dismal market mood.

Technical Analysis: Pound Sterling declines towards 200-DEMA

Pound Sterling falls back vertically after failing to sustain above the round-level resistance of 1.2600. The near-term outlook of the GBP/USD pair has turned bearish as it has dropped below the 20, 50 and 100-day Exponential Moving Averages (EMAs). The Cable is declining towards the 200-day EMA, which trades around 1.2510.

The 14-period Relative Strength Index (RSI) has dropped to 40.00. A slippage below the same would trigger a bearish 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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