Pound Sterling extends gains towards weekly highs on improved market mood

• Pound Sterling aims to recapture weekly highs as the appeal for risk-perceived assets improves.
• BoE Dhingra’s comments on the interest rate outlook were dovish due to the poor UK economic outlook.
• The preliminary S&P Global/CIPS PMI data will provide fresh guidance on the economic outlook.

The Pound Sterling (GBP) marches toward weekly highs in Thursday’s European session as the market sentiment remains upbeat. The GBP/USD pair extends its upside even though Bank of England (BoE) policymaker Swati Dhingra cautioned about downside risks to the United Kingdom economy due to high interest rates.

In her speech at the Market News International Connect event on Wednesday, Dhingra said the demand prospects are “weak and less resilient” than their previous forecasts. She added that higher mortgage costs and rental prices in 2023 shortened households’ pockets, which resulted in weak Retail Sales.

Usually, the Pound Sterling faces foreign outflows when a BoE policymaker warns about holding interest rates higher for a longer duration because it increases the possibility of interest rate cuts.

Meanwhile, investors await February’s preliminary S&P Global PMI data for both the United Kingdom and the United States, which will provide more insights into the economic outlook.

Daily digest market movers: Pound Sterling rises while USD Index refreshes two-week low

• The Pound Sterling rises toward a weekly high near 1.2670 as the risk appetite of investors has improved.
• The appeal for risk-sensitive assets strengthens as the Federal Open Market Committee (FOMC) minutes for the January monetary policy meeting, which were released on Wednesday, were largely in line with expectations.
• This has limited the upside of the US dollar. The US Dollar Index, which gauges the value of the US Dollar against six major currencies, has printed a fresh two-week low slightly below 103.80.
• On the domestic front, the Pound Sterling advances despite the fact that Bank of England policymaker Swati Dhingra warned about the increasing cost of living standards in the United Kingdom due to the maintenance of interest rates at 5.25% for a longer period.
• Swati Dhingra, who voted for a rate cut in February’s monetary policy meeting, warned about a hard landing if the BoE delays rate cuts.
• While most BoE policymakers closely track service inflation and wage growth for cues about the inflation outlook, Swat Dhingra said service prices are not a good measure of domestically generated inflation.
• Meanwhile, market expectations for BoE rate cuts are slightly up after BoE Governor Andrew Bailey said the central bank can reduce interest rates before inflation reaches the 2% target. 
• In Thursday’s session, investors will focus on the preliminary S&P Global/CIPS PMI data for February, which will be published at 09:30 GMT.
• The Manufacturing PMI is anticipated to remain below the 50.0 threshold at 47.5, higher than the former reading of 47.0.
• The Services PMI, which represents the service sector, is expected to stand at 54.1, lower than the prior reading of 54.3.

Technical Analysis: Pound Sterling approaches 1.2670

The Pound Sterling extends its winning spell to a third trading session on Thursday. The GBP/USD pair is approaching the weekly high at 1.2670. The overall trend remains sideways as the pair oscillates in the Descending Triangle pattern formed on the daily time frame.

The aforementioned chart pattern indicates a sharp volatility contraction. The chart formation carries a slightly negative bias due to the establishment of lower highs. The downward-sloping border of the Descending Triangle pattern is plotted from December 28 high at 1.2827, while the horizontal support is placed from December 13 low near 1.2500.

The pair has climbed above the 20-day and 50-day Exponential Moving Averages (EMAs), which are closely trading near 1.2630. Meanwhile, the 14-period Relative Strength Index (RSI) trades in the 40.00-60.00 region, indicating indecisiveness among market participants.