Pound Sterling consolidates as investors watch BoE for further action

• Pound Sterling remains topsy-turvy ahead of BoE’s interest rate decision this week.
• Recession fears in the United Kingdom economy deepen due to aggressive policy-tightening by the BoE.
• The BOE is expected to raise interest rates consecutively for the fourteenth time.

The Pound Sterling (GBP) demonstrates a directionless performance as investors eye the monetary policy of the Bank of England (BoE). The GBP/USD pair struggles to gauge direction as investors worry about deepening recession fears due to aggressive policy-tightening by the United Kingdom's central bank. To tame stubborn inflation, the BoE is expected to raise interest rates for the fourteenth time in a row.

The Bank of England has already raised interest rates to 5%, and a fresh interest rate hike of 25 basis points (bps) is expected to build more pressure on inflation. Labor shortages and higher food prices have remained major contributors to sticky UK inflation. BoE policymakers are also expected to consider a 50 bps interest rate hike as inflationary pressures in the UK economy are the highest compared to other G7 economies.

Daily Digest Market Movers: Pound Sterling seeks BoE policy

• Pound Sterling remains rangebound below 1.2900 as investors await interest rate policy by the Bank of England for further guidance.
• BoE policymakers are expected to discuss further policy tightening as they are committed to bringing inflation to 2%.
•  Inflationary pressures in the United Kingdom’s economy are well diverged from the desired rate of 2%, therefore more interest rate hikes cannot be ruled out.
• UK headline and core Consumer Price Index (CPI) data are at 7.9% and 6.8% respectively and will take sufficient time in easing to the desired rate.
• Headline inflation has softened to 7.9% from its peak of 11.1% but a recent recovery in global oil prices has elevated fears of a rebound in inflationary pressures.
• Core inflation is still near a 31-year high of 7.1% due to higher cost of services and tight labor market conditions.
• Recently, the BoE and UK authorities discussed with industry regulators to avoid overcharging customers so that the burden from households could ease and inflationary pressures could be anchored.
• UK delegates decided to widen their inflation-controlling toolkit to better deal with inflationary pressures.
• The BoE is expected to raise interest rates further by 25 bps to 5.25% despite fears of a recession enlarging.
• A poll conducted by Reuters showed that interest rates in the UK economy will peak around 5.75%.
• Last week, UK Treasury advisers remained concerned about deepening recession fears due to aggressive policy-tightening by the BoE.
• The market mood turns cautious as China’s official Manufacturing PMI contracts for the fourth month in a row amid bleak demand. The economic data landed 10 bps higher than expectations of 49.2. A figure below 50.0 is considered a contraction.
• The US Dollar Index (DXY) approaches 102.00 as the United States' upbeat performance in the April-June quarter has triggered hopes of more interest-rate hikes from the Federal Reserve (Fed).
• US Gross Domestic Product (GDP) in Q2 rose by 2.4% amid a tight labor market and higher momentum in consumer spending.
• On Friday, the US Labor Cost index for Q2 dropped to 1.0% vs. expectations of 1.1% and Q1 publication of 1.2%. This might ease retail demand and eventually the price pressures.
• Meanwhile, investors are preparing for the US ISM Manufacturing PMI data, which will be released on Tuesday at 14:00 GMT. The economic data is expected to continue its contracting spell.

Technical Analysis: Pound Sterling remains sideways below 1.2900

Pound Sterling remains back-and-forth below the round-level resistance of 1.2900 as investors shift their focus toward the interest rate decision by the Bank of England. The Cable aims for a firm footing after correcting to near the 20-day Exponential Moving Average around 1.2860. The major trades in a Rising Channel chart pattern and it can discover support after testing the lower portion of the trade pattern.