Pound Sterling rises amid improvement in investors’ risk appetite

• Pound Sterling has stretched its upside recovery as the appeal of risk-assets improves.
• UK recession fears have faded on prospects of early BoE rate cuts.
• Fed policymakers refuse to provide timing of rate cuts amid uncertainty over inflation.

The Pound Sterling (GBP) shows some bullish moves in the European session on Wednesday as the appeal for risk-perceived assets has improved significantly. The GBP/USD rebounds strongly despite increasing prospects of early rate cuts by the Bank of England (BoE). 

The UK’s construction and service sectors have rebounded as prospects of rate cuts by the BoE have deepened amid easing price pressures. This has improved the confidence of business enterprises in the economic outlook.

The US Dollar has come under pressure despite the Federal Reserve (Fed) now expecting not to rush rate cuts amid a resilient United States economy. Fed policymakers continue to ignore discussions about the timing of rate cuts as the inflation situation is still uncertain due to robust labor market conditions and retail demand.

Daily Digest Market Movers: Pound Sterling advances while US Dollar drops further 

• Pound Sterling has extended its upside above 1.2600 as the United Kingdom's economic prospects improve despite the Bank of England (BoE) maintaining interest rates in the restrictive trajectory.
• After robust Services PMI data, UK S&P Global/CIPS Construction PMI rose sharply to 48.8 vs. expectations of 47.3 and the prior reading of 46.8. 
• UK construction companies have become more optimistic about fading recession risks and rate cuts by the BoE amid easing price pressures.
• Deepening prospects of loosening financial conditions and improving economic outlook have improved business optimism.
• The odds of early rate cuts by the BoE escalated after a dovish guidance on interest rates by Bank of England Chief Economist Huw Pill. 
• Huw Pill said on Monday that the central bank is now focusing on “when” rather than “if” it will start lowering its benchmark interest rates. Pill added inflation indicators are far from endorsing the commencement of an easy policy but the underlying inflation is not needed to return to 2% for rate cuts.
• Also, Stephen Millard, a NIESR deputy director, said the good news for 2024 was that wages would continue to rise while inflation fell quickly towards the BoE's 2% target, probably allowing the central bank to start cutting interest rates in May, Reuters reported.
• For fresh guidance on interest rates, investors will keenly observe how the labor market and service inflation will shape up.
• The US Dollar Index (DXY) has come under pressure despite investors losing conviction over rate cuts by the Federal Reserve in May.
• As per the CME Fedwatch tool, traders see a 53% chance for a rate cut by 25 basis points (bps) in May, which has come down as policymakers push back expectations of early rate cuts.

Technical Analysis: Pound Sterling rebounds above 1.2600

Pound Sterling advances above the round-level resistance of 1.2600 as the risk-appetite of the market participants is improving again. The GBP/USD pair recovers strongly after discovering buying interest near a seven-week low around 1.2500. The near-term outlook of the Cable is still downbeat as it is trading below the 20 and 50-day Exponential Moving Averages (EMAs), which trade around 1.2664 and 1.2634 respectively.