Pound Sterling awaits fresh guidance on interest rates

• Pound Sterling versus USD ranges as investors await the US core PCE inflation data.
• If the US inflation data turns stubborn, GBP/USD will suffer.
• In the UK, BoE policymakers need more evidence of inflation easing to 2% before initiating rate cuts.

The Pound Sterling (GBP) trades with nominal gains against the US Dollar in Thursday’s European session. Market participants await the United States core Personal Consumption Expenditure Price Index (PCE) for January, which will be published at 13:30 GMT. Federal Reserve (Fed) policymakers closely track the underlying inflation data to prepare a fresh outlook on interest rates. 

The GBP/USD pair oscillates inside Wednesday’s trading range as uncertainty over the timing of Bank of England (BoE) rate cuts keeps the Pound Sterling on the sidelines. BoE policymakers are reluctant to reduce interest rates early as it could stall progress in inflation declining towards the 2% target, or price pressures could flare up again.

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

• Pound Sterling trades lackluster around 1.2660 amid a quiet market mood as investors await the United States core PCE Price Index for January.
• The US core PCE Price Index data is expected to have risen by 0.4% monthly against a 0.2% increase in December. Investors anticipate that the underlying inflation data have decelerated to 2.8% annually against the former reading of 2.9%.
• The appeal for the US Dollar will strengthen if the core PCE Price Index data turns out stickier than expectations. This would allow Federal Reserve policymakers to lean towards keeping interest rates unchanged in the range of 5.25%-5.50% for a longer period.
• The US Dollar attracts higher foreign inflows if the Fed maintains a hawkish outlook on interest rates. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, remains subdued around 103.80 in Thursday’s European session.
• The Fed’s preferred inflation data would significantly influence market expectations for the timing of rate cuts.
• On a broader note, the Pound Sterling is expected to outperform the US Dollar as investors hope that the Bank of England will pivot to rate cuts later than the Fed.
• Core consumer price inflation in the United Kingdom economy is at 5.1%, the highest in the Group of Seven economies, which would force BoE policymakers to maintain a hawkish monetary policy stance for a longer period. 
• This week, BoE Deputy Governor Dave Ramsden said he wants to see how long inflation will remain persistent before considering a change in the monetary policy stance. In the last monetary policy meeting, Ramsden voted for holding interest rates at 5.25%.
• UK’s stubborn core inflation has been prompted by solid wage growth and high service inflation. However, annual shop price inflation has retreated to 2.5% in February due to weak growth in food items, the lowest since March 2022, which seems to offer some relief to households. The shop price index tracks price changes in food and non-food items. 

Technical Analysis: Pound Sterling remains sideways below 1.2700

Pound Sterling oscillates in a tight range around 1.2670. The GBP/USD pair continues to face stiff resistance near the downward-sloping border of the Descending Triangle pattern formed on a daily timeframe, placed from December 28 high at 1.2827. While, the horizontal support is plotted from December 13 low near 1.2500.

A Descending Triangle pattern exhibits indecisiveness among market participants but with a slight downside bias due to lower highs and flat lows formation.

The pair holds above the 20-day Exponential Moving Average (EMA), which trades around 1.2650. Meanwhile, the 14-period Relative Strength Index (RSI) remains within the 40.00-60.00 range, indicating a sharp volatility contraction.