Pound Sterling ticks over as investors seek fresh insights on BoE’s interest rates

• Pound Sterling trades in a narrow range as investors await fresh guidance on BoE interest-rate outlook.
• The UK business optimism improves amid imminent hopes for BoE pivoting to rate cuts.
• The US Dollar clings to gains amid Middle East tensions.

The Pound Sterling (GBP) struggles for direction on Friday as investors await fresh guidance on  Bank of England (BoE) interest rates. The GBP/USD pair trades sideways due to a quiet market of subdued sentiment. Market expectations for BoE’s rate cuts will guide further action in the Pound Sterling.

While uncertainty over the timing of BoE rate cuts continues to persist, investors hope that the central bank could reduce interest rates in the early part of the second-half of this year. The chances for a rate cut in the June policy meeting are under 50%, while a dovish decision for August seems inevitable.

BoE Governor Andrew Bailey said price pressures are expected to come down to the 2% target in spring before picking up again. This may allow the BoE to consider heavily unwinding its historically restrictive monetary policy stance.

Meanwhile, the US Dollar turns sideways after a v-shape recovery amid tightening labor market conditions. For the week ending February 16, individuals claiming jobless benefits for the first time were lower at 201K, against expectations of 218K and the prior reading of 213K. Also, Federal Reserve (Fed) policymakers reiterate the need for more evidence to confirm that inflation will decline to the 2% target.

Daily Digest Market Movers: Pound Sterling consolidates amid quiet market mood

• Pound Sterling is stuck in a tight range around 1.2650 as investors look for fresh triggers to get more insights into the interest-rate outlook.
• Bank of England policymakers have turned slightly dovish on interest-rate prospects due to the deepening cost of living crisis.
• BoE members have shifted their focus on how long interest rates will stay at their current levels, which indicates that the current monetary policy is sufficiently restrictive.
• In his testimony before the UK Parliament’s Treasury Select Committee, BoE Governor Andrew Bailey said the central bank doesn’t need inflation at the 2% target to reduce interest rates.
• Andrew Bailey also mentioned that market expectations of rate cuts are not “unreasonable”.
• This week, BoE policymaker Swati Dhingra warned that a delayed rate-cut decision could lead to a hard landing.
• The hard landing indicates a sharp contraction in economic activities if rates remain too high amid easing price pressures.
• On Thursday, the S&P Global/CIPS reported mixed preliminary data for February. The Manufacturing PMI came in at 47.1, lower than expectations of 47.5. While the Services PMI, at 54.3 outperformed expectations of 54.1.
• The S&P Global/CIPS witnessed an upturn in order book and improvement in business optimism as rate cuts from the BoE are imminent this year.
• The agency commented that the technical recession observed in the second half of 2023 in the United Kingdom economy is over. Still, it warned that the Red Sea crisis is disrupting supply chains, leading to increased shipping costs.
• Meanwhile, the market sentiment is broadly quiet amid the absence of potential indicators.
• The US Dollar Index, which measures the Greenback’s value against six competitive currencies, hovers near 104.00. 
• The appeal for safe-haven assets strengthened on Thursday amid the deepening Middle East crisis and hawkish remarks in Federal Open Market Committee (FOMC) minutes of the January policy meeting.

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

Pound Sterling trades back and forth in a tight range around 1.2660. The GBP/USD pair hovers inside Thursday’s trading range. The near-term trend is sideways as the pair oscillates in the Descending Triangle pattern formed on a daily timeframe. The aforementioned chart pattern indicates indecisiveness among market participants, carrying a slightly negative bias due to its formation of lower highs.

The downward-sloping border of the Descending Triangle pattern is plotted from December 28 high at 1.2827, while the horizontal support is placed from December 13 low near 1.2500. The pair holds above the 20 and 50-day Exponential Moving Averages (EMAs), which trade around 1.2630. Meanwhile, the 14-period Relative Strength Index (RSI) trades in the 40.00-60.00 region, indicating a sharp contraction in volatility.