Pound Sterling hovers near weekly high in a data-packed week

• Pound Sterling remains higher as market mood remains cheerful.
• The UK employment and inflation data will be the major triggers in the week ahead.
• January’s US inflation data will keep the US Dollar on its toes.

The Pound Sterling (GBP) clings to gains amid improved market sentiment in Monday’s European session. The GBP/USD pair is expected to remain volatile as investors await the United Kingdom employment and the United States Consumer Price Index (CPI) data on Tuesday. 

UK Average Earnings will be in focus as Bank of England (BoE) Deputy Governor Sarah Breeden said last week that the longevity of higher interest rates will be based on how price pressures and wage growth data evolve. 

If wage growth momentum remains strong, the BoE will need to keep interest rates elevated to combat inflation, which will actually be positive for Pound Sterling as higher interest rates attract more foreign capital inflows.

In today’s session, a speech from Bank of England Governor Andrew Bailey will be keenly watched, and could set a fresh tone for March’s monetary policy meeting. In the last monetary policy statement, Bailey pushed back on rate-cut expectations amid low confidence that inflation will soon return to its 2% target.

Daily Digest Market Movers: Pound Sterling rises on improved market mood

• Pound Sterling prints a fresh weekly high around 1.2650 ahead of a speech by Bank of England Governor Andrew Bailey.
• Last week, BoE Deputy Governor Sarah Breeden and Chief Economist Huw Pill said the focus is now on how long interest rates will remain restricted. They ruled out fears of further policy tightening.
• BoE policymakers, Jonathan Haskel and Catherine Mann warned that upside risks to price pressures supported the case for keeping interest rates restrictive for longer.
• The Pound Sterling is expected to remain volatile amid a data-packed week. Employment, inflation, quarterly Gross Domestic Product (GDP) and Retail Sales data are lined-up for release.
• Labor market data is scheduled for Tuesday. The Unemployment Rate for three months ending December is expected to drop to 4.0% from a former reading of 4.2%.
• Price pressures in the United Kingdom region are most stubborn in comparison with other Group of Seven economies due to higher wage growth and service inflation. Therefore, Investors will keenly focus on the Average Earnings data.
• Investors anticipate that wage growth excluding bonuses will decelerate to 6.0% in three months ending December against the former reading of 6.6%. In the same period, Average Earnings including bonuses are forecast to have grown at a slower pace of 5.7%.
• Slower wage growth momentum would offer some relief to BoE policymakers and will increase hopes of an early rate-cut.
• Meanwhile, the US Dollar Index (DXY) has discovered interim support near 104.00. The market mood is slightly upbeat despite United States inflation data for January looming large, which will be published on Tuesday. 
• US headline inflation is forecast to have grown at a slower pace of 3.0% against 3.4% in December. In the same period, core inflation that excludes volatile food and Oil prices is forecast to have decelerated slightly to 3.8% from 3.9%. 
• The appeal for the US Dollar would drop if the inflation data eases further.

Technical Analysis: Pound Sterling hovers near weekly high around 1.2630

Pound Sterling trades in a range of 1.2580-1.2640 from the past three trading sessions. The GBP/USD pair demonstrates a sharp volatility contraction ahead of the crucial economic events. The 50-day Exponential Moving Average (EMA) around 1.2630 is acting as a barricade for the Pound Sterling bulls. 

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a probable consolidation ahead.