Pound Sterling meanders as BoE policymakers line-up for testimony before UK Parliament

• Pound Sterling struggles for direction as investors await BoE’s guidance on inflation and interest rates.
• The stubbornness of the UK inflation outlook has deepened amid robust spending by households.
• The market mood is slightly cautious ahead of the FOMC minutes.

The Pound Sterling (GBP) trades sideways in Tuesday’s European session as the market sentiment is slightly downbeat ahead of the release of the Federal Reserve Open Market Committee (FOMC) minutes, which will provide a fresh outlook on interest rates. In today’s session, Bank of England (BoE) Governor Andrew Bailey and other policymakers will testify before the United Kingdom Parliament to guide the outlook on inflation and interest rates.

Investors expect the maintenance of a hawkish line of rhetoric from Andrew Bailey and his teammates amid less conviction over the achievement of price stability in a sustainable manner. Robust wage growth, sticky service inflation, and solid households spending are indicating a stubborn inflation outlook, allowing the BoE to adopt a wait-and-watch approach before consideration of rate cuts. A hawkish guidance from BoE policymakers may improve the attractiveness of the Pound Sterling.

This week, the GBP/USD pair will be guided by the preliminary S&P Global Manufacturing and Services PMI for February, which will be published on Thursday. 

Daily Digest Market Movers: Pound Sterling remains cautious ahead of FOMC minutes

• Pound Sterling remains inside the woods below 1.2600 as the market sentiment remains cautious.
• The Pound Sterling will be guided by the commentaries from Bank of England Governor Andrew Bailey and other Monetary Policy Committee (MPC) members on the inflation and the interest rate outlook before Parliament’s Treasury Committee.
• Andrew Bailey and his teammates are expected to maintain a hawkish narrative on interest rates as momentum in service inflation and wage growth is higher than what is required for bringing inflation down to the 2% target.
• Apart from that, robust Retail Sales data for January have indicated that the impact of hawkish stance on interest rates by the BoE is fading away. 
• Also, an indication of higher spending by households would support the United Kingdom economy in coming out from a recession.
• Last week, BoE Chief Economist Huw Pill advised to remain patient for rate cuts as current inflation data is insufficient to convince that inflation will sustainably decline to the 2% target.
• Meanwhile, the near-term outlook for the Pound Sterling has strengthened. The weekly data from the Commodity Futures Trading Commission (CFTC) shows that speculators lifted their bullish sterling position to $3.971 billion in the week to Feb 13, just shy of last July's nine-year high, Reuters reported.
• This week, investors will focus on the preliminary S&P Global/CIPS Manufacturing and Services PMI for January. Expectations are for the Manufacturing PMI to rise to 47.5 from 47.0, while Services PMI to drop to 54.1 from 54.3 in December.
• On the United States front, the US Dollar Index, which gauges the Greenback’s value against six rival currencies, rebounded to 104.40 amid uncertainty ahead of FOMC minutes for the January policy meeting, which will be released on Wednesday.
• The USD Index struggles to deliver a strong recovery as Federal Reserve policymakers are confident that inflation is moving in the right direction despite hotter-than-anticipated consumer price inflation and the Producer Price Index (PPI) data for January.

Technical Analysis: Pound Sterling consolidates below 1.2600

Pound Sterling is stuck in a tight range below 1.2600 on Tuesday after indecisive closing in the last two trading sessions. The broader appeal is expected to remain uncertain as the 20 and 50-day Exponential Moving Averages (EMAs) are on the verge of delivering a bearish crossover. The psychological support at 1.2500 to remain a major support for the Pound Sterling bulls.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a sharp volatility contraction.