Pound Sterling consolidates as focus shifts to Fed, BoE monetary policy meetings

• Pound Sterling struggles for a decisive move ahead of the monetary policy decision by both the Fed and the BoE.
• The BoE is expected to keep interest rates steady as slowdown fears mount.
• Stubborn UK inflation puts at risk Prime Minister Rishi Sunak’s pledge to halve inflation to 5.4% by year-end.

The Pound Sterling (GBP) registered lackluster moves on Wednesday as investors await monetary policy decisions from both the US Federal Reserve (Fed) and the Bank of England (BoE). The GBP/USD pair remains on tenterhooks as investors expect that the BoE will keep interest rates unchanged. 

The near-term demand for the Pound Sterling looks vulnerable as investors seem to believe that the BoE will hold rates steady, prompted by fears of a slowdown in the UK economy, shrugging off still stubborn price pressures. Apart from the monetary policy decision, investors will look for guidance on interest rates going forward and the inflation outlook. UK Prime Minister Rishi Sunak vowed in January to halve inflation to 5.4% by year-end, a promise that looks challenging as annual price growth was at 6.7% in September, broadly unchanged since July. 

Daily Digest Market Movers: Pound Sterling juggles ahead of key monetary policy decisions

• Pound Sterling remains on the backfoot as the appeal for risk-perceived assets diminishes ahead of the monetary policy meeting by the Federal Reserve and ongoing Middle East tensions.
• Hamas announced that it will release hostages in the next few days, but a ceasefire is not expected as the Israeli Defense Forces (IDF) are looking to enter Gaza for a full-scale ground offensive. 
• Apart from geopolitical tensions, caution among market participants ahead of the BoE meeting is keeping the Pound Sterling on tenterhooks.
• The BoE is expected to keep interest rates unchanged at 5.25% on Thursday. This would be the second straight time in which policymakers leave interest rates unchanged after 14 consecutive rate hikes.
• Investors doubt whether UK Prime Minister Rishi Sunak will fulfill his promise of halving inflation to 5.4% by year-end.
• Consumer inflation in the UK economy is the highest among G7 economies due to robust wage growth. In spite of persistent inflation risks, the BoE is expected to maintain the status quo as the economy is slowing down due to deteriorating labor demand.
• The UK Office for National Statistics (ONS) reported that employment shrank for the third time in a row in August, warranting upside risks to the Unemployment Rate.
• Other economic data pointing to weak consumer spending and declining business investment are also supporting a steady interest rate decision from the BoE.
• While robust wage growth continues to prompt price pressures, food price inflation dropped significantly in October. High inflation and soft labor demand forced households to spend less and save more amid a volatile environment. 
• The British Retail Consortium (BRC) reported on Tuesday that food inflation declined for a sixth straight month. The food price index decelerated to 8.8% in October from 9.9% in September.
• Meanwhile, the US Dollar Index (DXY) turns sideways around 106.80 after a sharp recovery as investors await the Fed’s monetary policy decision, private payroll data, and the ISM Manufacturing PMI for October.
• The Fed is expected to keep interest rates in the range of 5.25%-5.50% but will deliver hawkish guidance as inflation in excess of 2% seems the most stubborn due to robust consumer spending, strong labor market conditions, and expectations of a revival in business activity.
• An upbeat private payrolls and factory activity report would strengthen the US Dollar as it would allow the Fed to keep interest rates elevated for a longer period.
• The survey of private factories done by S&P Global for October showed that the Manufacturing PMI came in at the 50.0 threshold, which separates expansion from contraction in factory activity. 

Technical Analysis: Pound Sterling trades sideways around 1.2150

Pound Sterling juggles around 1.2150 as investors await the monetary policy decision from both the Fed and the BoE. The near-term outlook remains bearish as the 20-day Exponential Moving Average (EMA) has been acting as a major barricade for the Pound Sterling bulls. Downward-sloping 50-day and 200-day EMAs indicate that the broader trend is extremely bearish. Momentum oscillators demonstrate a contraction in volatility.