Pound Sterling consolidates ahead of crucial US GDP data

• Pound Sterling remains inside the woods ahead of US Q4 GDP data.
• Strong UK PMIs have prompted expectations of hawkish guidance from BoE policymakers.
• Going forward, policy decisions from the Fed/BoE will be in focus.

The Pound Sterling (GBP) struggles for direction as investors shift focus towards the central bank policy decisions, which are scheduled for next week. The GBP/USD remains sideways as a steady interest rate decision by the Bank of England (BoE) is widely anticipated. Market participants will keenly focus on the outlook for interest rates as strong PMI’s for December has allowed BoE policymakers to support the argument of maintaining interest rates at restrictive levels for a longer period.

Investors should brace for high volatility as the market mood will be guided by the United States Q4 Gross Domestic Product (GDP) data. Upbeat US data would lower the odds advocating an early interest rate-cut by the Federal Reserve (Fed) and support the US Dollar

Daily Digest Market Movers: Pound Sterling turns sideways ahead of US data

• Pound Sterling falls to near 1.2700 against the US Dollar as the market mood is slightly cautious ahead of the United States Q4 GDP and core underlying inflation data for January.
• The GBP/USD pair delivered a strong upside on Wednesday after robust preliminary UK PMI data for January.
• The S&P Global reported the Manufacturing PMI has risen to 47.3 in January (preliminary reading), against expectations of 46.7 and the prior reading of 46.2. Services PMI expanded to 53.8 vs. the former reading of 53.4. Investors projected a slight decline in the economic data to 53.2.
• A PMI figure below the 50.0 threshold is considered a contraction; above 50 indicates expansion. 
• The agency reported that manufacturing activities were supported by increased hopes price pressures will ease, lower borrowing costs and a faster economic recovery.
• Improved Manufacturing PMI numbers have prompted the need for the BoE to keep interest rates higher for a longer period than what was previously anticipated by market participants. If this trend continues it will likely support Sterling. 
• Going forward, market participants will shift focus to the interest rate decision by the Bank of England, which will be announced next week. 
• The BoE is widely anticipated to maintain interest rates steady at 5.25% for the fourth time in a row while fresh guidance on the interest rate outlook will be keenly watched. 
• Meanwhile, the US Dollar Index (DXY) has delivered a sharp recovery to near 103.30 as appeal for safe-haven improves ahead of the crucial economic data.
• As per the consensus, the US economy grew at a slower pace of 2.0% after expanding 4.9% in the third quarter of 2023. 
• The hopes of a rate cut by the Federal Reserve (Fed) in March could increase if the growth rate turns out slower-than-projected while stronger numbers could prompt the higher-for-longer interest rate narrative.

Technical Analysis: Pound Sterling trades inside Wednesday’s trading range

Pound Sterling oscillates inside Wednesday’s trading session as focus shifts to central bank policy decisions, scheduled for next week. The broader-term trend for the GBP/USD pair remains upbeat as it sustains above the 20- and 50-day Exponential Moving Averages (EMAs). The 14-period Relative Strength Index (RSI) trades in the 40.00-60.00 range, indicating a sharp decline in volatility. A downside move could occur if the Cable drops below the crucial support of 1.2650.