Pound Sterling attempts recovery as UK’s inflation expected to remain persistent

• Pound Sterling has picked some strength after correcting to near 1.3070 ahead of UK inflation data.
• United Kingdom’s hotter CPI data could put more pressure on the economic outlook.
• The second consecutive fat interest rate hike from the Bank of England is well-anticipated.

The Pound Sterling (GBP) has found some buying interest after a corrective move to near 1.3070 as investors are shifting their focus toward the United Kingdom Consumer Price Index (CPI) data, which will be released on Wednesday at 06:00 GMT. The GBP/USD pair has sensed some support as investors are hoping that core inflation will remain elevated and the Bank of England (BoE) would be forced to continue its aggressive policy-tightening spell so that inflation could return to desired levels.

Although United Kingdom’s central bank would be left with no other option than to raise interest rates further, the burden of higher borrowing costs and red-hot inflation will be faced by households. After big-ticket items, the burden of inflationary pressures is extended to the housing sector. UK’s corporate is worried and believes that "the burst of business optimism seen in the spring has faded under the weight of inflation and rising interest rates”.

Daily Digest Market Movers: Pound Sterling rebounds amid weakness in US Dollar

• Pound Sterling has rebounded after a correction below 1.3100 ahead of the United Kingdom’s inflation data.
• As per the consensus, monthly headline CPI reported a pace of 0.4% lower than the prior pace of 0.7%. While annualized inflation is expected to decelerate to 8.2% against the former release of 8.7%.
• Core inflation that excludes volatile oil and food prices is expected to remain steady at fresh highs of 7.1%.
• The elevated Core Consumer Price Index is expected to increase the burden on households.
• Wide deviation in the pace of CPI and labor cost index has already forced households to postpone the purchase of big-ticket items.
• United Kingdom’s housing sector has come under pressure amid a decline in home buyers due to higher interest obligations, as reported by UK’s property website Rightmove.
• A stubborn inflation report would definitely force the Bank of England to go for a fat rate hike for the second consecutive time.
• Investors should note that BoE Governor Andrew Bailey has already raised interest rates to 5%.
• Hot inflation is expected to make UK’s economic outlook worsen even more as BoE policymakers would be forced to deliver hawkish commentaries.
• Meanwhile, a quarterly survey from Deloitte showed that British firms are extremely cautious in the face of high inflation and rising interest rates.
• The overall market mood is quite cautious ahead of the second-quarter result season globally.
• The US Dollar Index (DXY) is choppy on early Monday below 100.00 as investors are shifting their focus toward the monthly United States Retail Sales data, which will release on Tuesday at 12:30 GMT.
• On Friday, Chicago Federal Reserve (Fed) Bank Austan Goolsbee conveyed that inflation is progressively declining but is still higher than where the Fed wants it to be. Goolsbee reiterated that central bank policymakers are on a "golden path" to containing inflation without triggering recession.
• Meanwhile, the tug of war among market participants that the Fed will announce two more rate hikes this year or conclude the policy-tightening spell with a mere one rate hike is still on.
• Last week, Fed Governor Christopher Waller commented that two more interest rate hikes are still appropriate by the year-end.

Technical Analysis: Pound Sterling tests strength of Rising Channel breakout

Pound Sterling has tested the strength in the breakout of the Rising Channel chart pattern formed on a daily period by a marginal correction. A breakout of the aforementioned chart pattern indicates immense strength in the upside momentum. Upward-sloping short-to-long-term period Exponential Moving Averages (EMAs) indicate firmness in the Pound Sterling bulls.

Momentum oscillations are oscillating in the bullish trajectory, showing no signs of divergence and any evidence of an oversold situation.