Pound Sterling revives as BoE Mann supports aggressive tightening

• Pound Sterling capitalizes on improved market sentiment and BoE’s Mann hawkish commentary.
• Katherine Mann favored an aggressive policy-tightening approach.
• Investors shift focus to the UK August GDP data scheduled for Thursday.

The Pound Sterling (GBP) stabilizes after recovering from a six-month low as market sentiment improves and Bank of England (BoE) policymaker Katherine Mann calls for a more aggressive approach to bring down inflation to 2%. Last week, BoE Governor Andrew Bailey said he expected inflation to decline to or below 5% by year-end, but added that he doesn’t promise the achievement of price stability in a timely manner.

The UK manufacturing and construction sectors are bearing the brunt of higher interest rates. UK’s factory activity has been contracting, with the PMI gauge coming in below the 50.0 threshold for a long period. To get more insights about the current status of the economy, investors will shift focus to the UK factory activity and GDP data for August, which will be released on Thursday.

Daily Digest Market Movers: Pound Sterling recovers as US Dollar corrects

• Pound Sterling faces some selling pressure near 1.2250 against the US Dollar, but more upside seems favored as Bank of England policymakers supported more aggressive monetary policy.
• BoE’s Katherine Mann, who has been a hawkish policymaker, said on Monday that central bankers need to be more aggressive. The central bank is not solely responsible for bringing down inflation to 2% but also needs to tame rising inflation expectations, she said.
• Katherine Mann expressed concerns about how long inflation will remain above the desired target of 2%.
• UK inflation is higher compared with other G7 economies. Rising Oil prices due to deepening Middle East tensions could prompt higher inflation expectations.
• Due to higher inflation and interest rates by the BoE, the UK economy is going through a vulnerable phase. UK manufacturing output and construction spending have both declined as firms are worried about the demand outlook.
• Investors will focus on the August GDP report, which will be published on Thursday, which will provide further clues about the country’s economic performance. Economists expect monthly Manufacturing Production contract by 0.4% against a 0.8% contraction recorded for July. Monthly Industrial Production is foreseen to decline at a slower pace of 0.2% against a contraction of 0.7% in July. 
• The continued decline in UK factory activity would indicate that firms are still pessimist about forward demand despite a pause in the policy-tightening spell by the BoE.
• The monthly Gross Domestic Product (GDP) is seen expanding by 0.2%, swinging from a 0.5% decline recorded in July.
• On the global front, investors seem to be digesting the Israel-Hamas war as the latter said it is open to discussions over a truce. Still, talks about a ceasefire aren’t expected soon and the is an increasing risk of participation from other countries in the conflict. .
• The US Dollar Index (DXY) found some support after testing the crucial level of 106.00. Investors shift focus to the United States inflation data, which will be published on Thursday. The core Consumer Price Index (CPI), which excludes volatile food and Oil prices, is seen expanding at a steady pace of 0.3% on month.
• The USD Index could strengthen if the inflation report for September turns out hotter than expected. Sticky inflation and robust labor market conditions could force Federal Reserve (Fed) policymakers to opt for another interest rate hike on November 1.
• Before that, the FOMC minutes from the last Fed meeting will be keenly watched, which will be released on Wednesday. The FOMC minutes for September monetary policy will likely provide the rationale behind keeping interest rates unchanged.

Technical Analysis: Pound Sterling struggles to climb above 1.2250

Pound Sterling faces barricades near its weekly high at 1.2250, but the pair is expected to extend its upside momentum as the risk-appetite of market participants is improving. The GBP/USD pair has rebounded to near the 20-day Exponential Moving Average (EMA) at around 1.2264. However, the broader GBP/USD outlook is bearish as the 50-day and 200-day Exponential Moving Averages (EMAs) have delivered a death cross near 1.2450. Potential support is around 1.2000.