Pound Sterling consolidates near 1.3000 ahead of UK inflation/employment data

• The Pound Sterling ranges near 1.3000 against the US Dollar, focusing on US/UK data.
• Fed’s Powell admitted that recent inflation readings have added some confidence in disinflation towards 2%.
• BoE’s Dhingra supported lowering interest rates sooner.

The Pound Sterling (GBP) turns sideways slightly below the psychological resistance of 1.3000 against the US Dollar (USD) in Tuesday’s London session. The GBP/USD pair struggles to extend its upside as the US Dollar gains ground after Federal Reserve (Fed) Chair Jerome Powell’s speech at the Economic Club of Washington on Monday.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, manages to hold the key support at around 104.00.

Powell acknowledged that recent inflation data has added confidence that inflation is on course to return to the desired rate of 2%. However, he mentioned that policymakers need to gain more confidence before considering interest rate cuts. 

Separately, San Francisco Federal Reserve Bank President Mary Daly said, “confidence is growing” that inflation is heading towards the 2% target. Daly refrained from providing a timeframe for rate cuts. She further said that the central bank should hold rates so that they manage to maintain downside pressure on inflation but not too long that they become a challenge to job growth.

In Tuesday’s session, investors will focus on the US Retail Sales data, which is expected to show that sales at retail stores remained unchanged in June after a meager growth of 0.1% in May.

Daily digest market movers: Pound Sterling remains firm ahead of UK data-packed week

• The Pound Sterling remains broadly bullish against its major peers on Tuesday, with the focus on the United Kingdom (UK) Consumer Price Index (CPI) for June and the employment data for the three months ending May, which will be published on Wednesday and Thursday, respectively.
• Investors will pay close attention to the inflation readings as they will suggest whether the Bank of England (BoE) will start reducing interest rates from the August meeting, as expected by financial markets. Economists expect the annual headline and core CPI, which excludes volatile food and energy prices, to have grown steadily by 2% and 3.5%, respectively. The monthly headline inflation is estimated to have risen at a slower pace of 0.1% from the former reading of 0.3%.
• Apart from the standard inflation components, investors will keenly focus on the status of price pressures in the service sector, a major factor that has been restricting BoE policymakers from advocating early rate cuts.
• On Monday, BoE’s external member of the Monetary Policy Committee Swati Dhingra cited concerns over squeezing consumer spending due to the maintenance of a restrictive interest rate framework. She favored cutting borrowing rates with the belief that inflation is unlikely to rise sharply again.
• Meanwhile, the three-month-ending in May ILO Unemployment Rate is estimated to remain steady at 4.4%. In the same period, other key components on which market participants will keenly focus are Average Earnings, Excluding and Including bonuses, a key measure of wage growth that fuels service inflation. The wage growth measure, Excluding and Including bonuses, is estimated to decelerate to 5.7%.

Technical Analysis: Pound Sterling hovers near 1.3000

The Pound Sterling trades back and forth after rising to near the psychological figure of 1.3000. The GBP/USD pair clings to gains amid uncertainty over the US Dollar’s outlook. The Cable's near-term appeal has strengthened after a breakout above the March 8 high near 1.2900. The pair is expected to extend its upside towards the two-year high near 1.3140. 

All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong bullish trend.

The 14-day Relative Strength Index (RSI) jumps to nearly 70.00 for the first time in more than a year, indicating a strong momentum towards the upside.