Pound Sterling eyes recovery as stubbornly high inflation triggers hawkish BoE bets

• Pound Sterling finds some support after a fresh four-day low as room remains open for further policy-tightening by the BoE.
• A slowdown in progress in achieving 2% inflation has escalated hawkish BoE bets.
• The market mood remains risk-off amid increasing Israel-Hamas tensions. 

The Pound Sterling (GBP) strives for a cushion, remaining vulnerable due to persistent inflation fears. The GBP/USD pair struggles for traction as the UK Consumer Price Index (CPI) report for September released on Wednesday showed inflation remains stubborn due to higher Oil prices, services inflation and strong wage growth.

Inflation in the UK is the highest among G7 economies. The decline in inflation towards the 2% target has lost steam,  keeping Bank of England(BoE) policymakers on their toes. Meanwhile, market sentiment remains cautious due to persistent fears of Iran’s intervention in the Israel-Palestine conflict. Going forward, the Pound Sterling’s valuation will be guided by the UK Retail Sales data, which will be published on Friday. Economists expect that Retail Sales contracted marginally in September.   

Daily Digest Market Movers: Pound Sterling awaits Retail Sales data

• Pound Sterling finds some support after printing a fresh four-day low near 1.2110 as expectations of further policy-tightening by the Bank of England (BoE) increased after inflation data suggested persisting price pressures. 
• The UK Office for National Statistics (ONS) reported on Wednesday that monthly headline inflation rose by 0.5% while investors forecasted a growth rate of 0.4%. In August the headline inflation has grown by 0.3%. Annual headline CPI data grew at a steady pace of 6.7%, higher than the expectations of 6.5%. 
• The core inflation data, which strips off volatile food and Oil prices, topped expectations marginally. Core inflation came in at 6.1%, higher than the 6% expected but decelerating from the prior reading of 6.2%.
• Stubborn UK inflation has infused fresh life into expectations of further policy-tightening by the BoE. Slowing progress in taming both headline and core inflation has brought discomfort to BoE policymakers.
• Persistent fears of inflation remaining stubborn have deepened discussions about raising the inflation target to 3%. British think-tank The Resolution Foundation said that a higher inflation target would allow the central bank to reduce borrowing and bond-buying needs and would provide more stimulus.
• UK Prime Minister Rishi Sunak pledged to halve inflation by the year-end, a commitment that looks difficult to achieve.
• The Producer Price Index (PPI) for inputs slowed significantly to 0.4% but rose by a sharp 0.4% for outputs, reflecting the consequences of higher wages and fuel prices.
• Going forward, investors will focus on the Retail Sales data for September, which will be published on Friday at 06:00 GMT. As per the estimates, Retail Sales are expected to contract by 0.1% on month. This indicates that high inflation and borrowing costs have squeezed the real income of households.
• After US President Joe Biden, UK PM Rishi Sunak arrived in Israel to meet Prime Minister Benjamin Netanyahu.
• The market sentiment remains downbeat as risks of an Iran intervention in the Israel-Palestine conflicts have escalated. Joe Biden said on Wednesday that the US stands with Israel. Earlier, Iran warned that it would not be a spectator if the US supports Israel.
• The US Dollar remains firm against risk-perceived currencies ahead of the speech from Federal Reserve (Fed) Chair Jerome Powell. It is highly likely that Powell will support the stance of keeping interest rates higher for a longer period to ensure the achievement of bringing back inflation to the 2% target.
• Jerome Powell may refrain from discussing the appropriateness of further policy tightening as higher US Treasury yields seem sufficient to lower overall spending and investment.

Technical Analysis: Pound Sterling eyes support near 1.2100

Pound Sterling seeks support near the round-level cushion of 1.2100. The broader GBP/USD outlook is bearish as the death cross by the 50-day and 200-day Exponential Moving Averages (EMAs) is intact. The 20-day EMA at 1.2230 continues to act as a barricade for Pound Sterling bulls. Momentum oscillators struggle for a firm footing.