Pound Sterling prints a fresh weekly high ahead of US CPI, UK factory data

• Pound Sterling has stabilized above 1.2700 on upbeat market sentiment.
• The release of UK factory data, if upbeat, would ease fears of a technical recession.
• The US Dollar faces intense selling pressure ahead of US Inflation data.

The Pound Sterling (GBP) has extended its upside, capitalizing on improved market sentiment and an absence of commentary hinting at interest rate cuts from any Bank of England (BoE) policymakers. 

GBP/USD has printed a fresh weekly high as investors have ignored uncertainty associated with United States Consumer Price Index (CPI) data, which will be published at 13:30 GMT. Deepening confidence of investors toward rate cuts by the Federal Reserve (Fed) from March is maintaining a cheerful market mood.

Further action in the Pound Sterling will be guided by the UK factory data, which is due to be released on Friday. Last month, UK Finance Minister Jeremy Hunt commented that the economy is not as bad as revised Gross Domestic Product (GDP) numbers for the third quarter would suggest. The economic data is expected to remain upbeat but risks of a technical recession are still high as the BoE forecasted a stagnant performance in the last quarter of 2023.

Daily Digest Market Movers: Pound Sterling capitalizes on risk-on mood

• Pound Sterling prints a fresh weekly high at 1.2770. Risk-perceived assets have gained traction as the market mood is quite upbeat ahead of the United States inflation data for December.
• The headline inflation figure is expected to show an annual rise of 3.2%, slightly higher than the former reading of 3.1%. Meanwhile, the core inflation that strips off volatile food and Oil prices is seen softening to 3.8% from the prior reading of 4.0% in the same period.
• Monthly headline CPI is estimated to have grown by 0.2% from 0.1% in November while the core inflation rate is estimated to have risen at a steady pace of 0.3%.
• Market participants will keenly watch the inflation result as it will provide the basis for policy guidance on interest rates provided by Federal Reserve (Fed) policymakers in their monetary policy meeting on January 31.
• The Fed is widely anticipated to keep interest rates unchanged at 5.25-5.50%. However, investors will be looking for cues about a possible reduction in interest rates from March.
• A sticky inflation report would dial down bets in favour of rate cuts from March.
• On the domestic front, the Pound Sterling will be guided by the factory and Gross Domestic Product (GDP) data for November, which will be published on Friday.
• Annual Manufacturing and Industrial Production data are forecasted to grow by 1.7% and 0.7% respectively. The monthly data is projected to rise by 0.3%. Monthly GDP is seen expanding by 0.2% after shrinking by 0.3% in November.
• Upbeat factory data may trim fears of a technical recession in the UK economy.
• The Bank of England continues to struggle, caught between high price pressures and deepening recession fears.
• On Wednesday, BoE Governor Andrew Bailey emphasized on bringing inflation back to the 2% target. While comparing the current scenario with the global financial crisis, Bailey said UK households with mortgages are nowhere near as stretched as during the subprime crisis. He added that incomes of households have risen in recent months.
• The US Dollar Index (DXY) declines toward 102.20 as investors seem confident about steep rate cuts this year despite steady labor market conditions.

Technical Analysis: Pound Sterling aims stability above 61.8% Fibo retracement

Pound Sterling refreshes weekly high near 1.2770 as the risk-appetite of the market participants has improved ahead of US inflation data. The GBP/USD pair aims at stability above the 61.8% Fibonacci retracement at 1.2710 (of the move from 13 July 2023 high at 1.3142 to 4 October 2023 low at 1.2037). The overall trend is quite bullish as all short-to-long term Exponential Moving Averages (EMAs) are sloping higher.

The 14-period Relative Strength Index (RSI) is hovering around 60.00. A decisive break above the same will trigger a bullish momentum.