Pound Sterling trades sideways as investors seek fresh guidance over BoE interest rates

• The Pound Sterling trades back and forth as investors await a fresh trigger.
• The UK economy returns to growth after contracting in the second half of 2023.
• Market sentiment remains calm ahead of US data.

The Pound Sterling (GBP) is stuck in a tight range around 1.2800 in Thursday’s London session as investors seek fresh guidance on the Bank of England’s (BoE) next moves in terms of interest rates. The GBP/USD pair trades sideways as investors look for clues about when the BoE and the Federal Reserve (Fed) will start reducing interest rates.

The near-term appeal of the Cable is uncertain as the stubborn United States inflation data for February has reinforced fears that the Fed could delay plans to reduce interest rates. Currently, markets broadly expect that the Fed will make this move in June.  

Meanwhile, the US Dollar Index (DXY) rebounds to 102.90 ahead of the US Producer Price Index (PPI) and Retail Sales data for February, which will be published at 12:30 GMT. These indicators could provide fresh cues about the Fed’s rate-cut timing for this year.

Daily digest market movers: Pound Sterling remains confined in tight range ahead of US data

• The Pound Sterling consolidates in a tight range around 1.2800 against the US Dollar. The pair trades broadly unchanged after Wednesday’s release of the UK monthly Gross Domestic Product (GDP) and factory data for January, which showed the economy grew by 0.2% as expected, boosted by higher demand at retailers and sales of house-building materials. Meanwhile, Industrial Production remained weak.
• The expected growth in the UK economy at the start of 2024 has brought some relief to UK Prime Minister Rishi Sunak ahead of elections, which must be held no later than the end of January 2025. Chancellor of the Exchequer Jeremy Hunt said: "While the last few years have been tough, today's numbers show we are making progress in growing the economy,” Reuters reported.
• The UK economy has returned to growth after falling into a technical recession in the second half of 2023. However, it is too early to say that the recession was shallow and the economy has come out of it until data for the first quarter as a whole shows an expansion. The Office for Budget Responsibility (OBR) forecasts the UK economy to grow by 0.8% in 2024.
• Going forward, market expectations for the Bank of England rate cuts will drive the Pound Sterling’s next moves. Investors’ bets for the BoE reducing interest rates in the August meeting have strengthened on slower-than-expected wage growth in three months ending January.

Technical Analysis: Pound Sterling trades lacklustre near 1.2800

The Pound Sterling trades inside Wednesday’s range around 1.2800 as investors seek fresh economic triggers for further action. The 20-day Exponential Moving Average (EMA) near 1.2730 continues to slope higher, indicating a moderate near-term demand. The 1.2700 round-level support would be a strong cushion for the Pound Sterling bulls.

The 14-period Relative Strength Index (RSI) oscillates in the 60.00-80.00 range, indicating that strong bullish momentum persists.