Pound Sterling turns topsy-turvy as UK’s inflation shows no signs of easing

• Pound Sterling is displaying back-and-forth turns as households are facing the burden of high inflation.
• Inflation in the United Kingdom is sticky due to the tight labor market and 45-year high food inflation.
• After a slightly higher Manufacturing PMI, investors are shifting their focus toward Services PMI.

The Pound Sterling (GBP) is demonstrating choppy moves around 1.2700 as investors are awaiting key Service PMI numbers after better-than-expected Manufacturing PMI data. The GBP/USD pair is non-directional as the market mood is broadly quiet due to the Independence Day holiday in the United States. Investors would keep their entire focus on interest rate guidance from Bank of England (BoE) policymakers.

The economic outlook for the United Kingdom is still solid as demand from households is upbeat despite higher interest rates by the Bank of England. While problems or BoE policymakers and the UK government are galloping as inflation looks extremely sticky above 8.5% and tight monetary policy is failing to do the expected job.

Daily Digest Market Movers: Pound Sterling remains sideways around 1.2700

• Pound Sterling finds strength as United Kingdom’s economic prospects are improving despite higher interest rates from the Bank of England.

• UK’s S&P Manufacturing PMI for June landed at 46.5, higher than the consensus and the former release of 46.2.
• Manufacturing PMI has been broadly contracting straight for the past 11 months. A figure below 50.0 is considered a generation contraction.
• Later this week, investors will focus on the June Services PMI data. The economic data is seen steady at 53.7.
• The Bank of England warned commercial banks on Monday that they may be underestimating their exposure to private equity and to commodity markets at a time when rising interest rates could squeeze liquidity in the market, as reported by Reuters.
• The monthly survey by Citi Bank and polling firm YouGov showed that consumer inflation expectations for one year have increased to 5.0% in June from 4.7% in May.
• This must be the outcome of stubborn inflation, which is reluctant to ditch the territory above 8.5%. Thanks to elevated food price inflation and tight labor market conditions that are keeping inflation higher.
• BoE Governor Andrew Bailey is consistently supporting further interest rate hikes as the UK economy is dealing with more persistent inflation.
• Contrary, BoE policymaker Silvana Tenreyro is opposing further increases in interest rates as risks having to make a sharp U-turn if it tightens policy anymore.
• Market mood is quite cautious as investors have been sidelined ahead of the second-quarter result season.
• The US Dollar Index (DXY) is broadly under pressure as the United States Manufacturing PMI continued contraction straight for eight months.
• US factory activities landed at 46.0, significantly lower than the expectations of 47.2 and the former release of 46.9. Contrary to the US PMI data, New Orders Index jumped to 45.6, higher than the consensus of 44.0 and the prior release of 42.6.
• Later this week, investors will focus on the Federal Open Market Committee (FOMC) minutes and the employment data to be released by the US Automatic Data Processing (ADP).
• US ADP private employment report is expected to disclose the addition of fresh 180K employees, lower than the former addition of 278K.

Technical Analysis: Pound Sterling eyes lower portion of the Rising Channel pattern

Pound Sterling is correcting toward the lower portion of the Rising Channel chart pattern in which pullback moves are considered as buying opportunities by the market participants. The Cable is holding the 20-period daily Exponential Moving Average (EMA), which indicates that the upside momentum is extremely solid.

Buyers could add positions if Cable corrects further to 1.2570 as a bargain buy opportunity would emerge. While upside bias could fade if it extends correction below the psychological support of 1.2500.