Pound Sterling adds more gains as BoE prepares for 14th consecutive rate hike

• Pound Sterling extends recovery as the market mood turns cheerful.
• More interest rates by the Bank of England will elevate pressure on United Kingdom’s economic growth.
• UK first-time home buyers postpone demand as the housing sector faces headwinds from higher borrowing rates.

The Pound Sterling (GBP) printed a fresh four-day high on Wednesday as market participants shrug off risk associated with weak economic prospects. The GBP/USD pair recovers sharply as strength in Pound Sterling is uncovered ahead of the interest rate decision by the Bank of England (BoE), which will be announced on August 3.

No doubt, higher interest rates by the United Kingdom’s central bank have already dampened economic growth. The BoE cannot avoid raising rates further as inflation is almost four times the required rate of 2%. An interest rate hike at the August policy meeting would be the 14th straight raise to build pressure on stubborn inflation. The UK central bank is expected to raise interest rates by 25 basis points (bps) to 5.25%.

Daily Digest Market Movers: Pound Sterling jumps amid cheerful market mood

• Pound Sterling finds resistance near the round-level resistance of 1.2900 after a sharp recovery as investors turn cautious ahead of key interest rate policy.
• Market sentiment for Pound Sterling turns upbeat as investors ignore the United Kingdom’s weak economic prospects.
• UK households are facing pressure from stubborn inflation and higher interest rates by the Bank of England as demand for big-ticket items hit hard.
• The housing sector faces the headwinds of higher borrowing costs as first-time buyers postpone home purchases.
• Britain’s economic recovery is under stress as a one-time decline in inflation is insufficient to increase confidence among individuals.
• More interest-rate hikes from the BoE are in the pipeline as the journey toward achieving price stability is still out of sight.
• Meanwhile, the BoE is preparing for its 14th consecutive interest-rate hike, which will be announced on August 3.
• Investors hope that interest rates by the UK central bank will peak around 5.75%, according to a Reuters poll.
• BoE policymakers need to do a lot more so that UK PM Rishi Sunak can meet his promise of halving inflation to 5% by year-end.
• The Confederation of British Industry reported on Monday that British factory orders declined in July at the weakest rate this year, a positive sign, while expectations for increases in selling prices cooled further, according to Reuters.
• Meanwhile, the US Dollar Index (DXY) has extended its correction below 101.20 as investors are clear that the Federal Reserve (Fed) will raise interest rates to 5.25-5.50%.
• Investors are uncertain whether the Fed will consider a further interest rate hike in September or will skip the tightening regime as it did at June’s meeting.
• The context of easing inflation in the United States while keeping the Unemployment Rate at record lows has put the Fed in a more comfortable situation.
• Also, resilience in the US economy due to tight labor market conditions and decent consumer spending eased fears of recession.

Technical Analysis: Pound Sterling shifts auction place above 1.2900

Pound Sterling discovers buying interest after an intense sell-off to near the round-level cushion of 1.2800. The Cable finds support after successfully testing the 20-day Exponential Moving Average (EMA) around 1.2866. The asset prints a four-day high marginally above 1.2900 and is expected to continue its upside momentum. The Cable trades above short-to-long-term EMAs, indicating firm upside bias.