Pound Sterling stays on backfoot as BoE rate cut expectations for June mount

• The Pound Sterling is slightly under pressure on firm BoE rate cut expectations.
• Diminished speculation for the Fed pivoting to rate cuts in June provides support to the US Dollar.
• This week, the US Inflation data will significantly impact Fed rate cut expectations.

The Pound Sterling (GBP) falls slightly but broadly consolidates in a tight range above 1.2600 in Monday’s European session. The GBP/USD pair trades sideways as investors await the United States Consumer Price Index (CPI) data for March, which will be published on Wednesday. The inflation data will provide more clarity over whether the Federal Reserve (Fed) will begin to reduce interest rates from June.

The US Dollar Index (DXY), which tracks the Greenback’s value against the US Dollar, is slightly up near 104.30.

Currently, market expectations for the Fed kicking off its rate-cut cycle in June have waned significantly after Friday’s strong US employment report. The report showed that labor demand by US employers remained strong even though the Fed is maintaining interest rates higher in the range of 5.25%-5.50%.

Strong payrolls data cast doubts over progress in inflation declining to the 2% target. This could allow Fed policymakers to maintain their view of keeping interest rates higher and avoid rushing for any rate cuts. 

In the United Kingdom, investors’ expectations for the Bank of England (BoE) to start reducing interest rates from the June meeting have recently deepened on increasing signs that price pressures are easing. This week, the Pound Sterling will be guided by the monthly Gross Domestic Product (GDP) and factory data for February, which will be published on Friday. Recently, S&P Global/CIPS showed that the UK Manufacturing PMI returned to growth after contracting for 20 months in a row.

Daily digest market movers: Pound Sterling is down while US Dollar is slightly positive

• The Pound Sterling oscillates in a tight range around 1.2630 as investors seek fresh guidance on when the Bank of England will pivot to rate cuts this year. Financial markets are anticipating this will happen in June after recent data suggested that inflation pressures have cooled down in recent months.
• United Kingdom’s strong wage growth remains a major force behind inflation. However, a survey from the UK’s Recruitment and Employment Confederation showed that starting salaries for permanent staff grew at the slowest rate in over three years in March, while spending on temporary workers fell by the most since July 2020. This adds to signs of a slowdown in Britain's job market,” Reuters reported. 
• The official Average Earnings Excluding Bonuses rose by 6.1% year over year in the three months ending February. The pace at which wages are increasing is almost double than what’s required to bring inflation down to the required rate of 2%. Therefore, BoE policymakers need to see a significant decline in wage growth so that they can be convinced that inflation will pivot to 2%.
• Going forward, market sentiment after the United States consumer price inflation data for March will be the main driver for the Pound Sterling’s moves.
• The US inflation data will indicate whether the Fed will begin reducing interest rates from the June meeting. Speculation for Fed rate cuts in June has been reduced significantly as the hiring data remained robust in March. US employers recruited 303K fresh payrolls, significantly better than expectations of 200K and the prior reading of 270K. The Unemployment Rate fell to 3.8% from the consensus and the prior reading of 3.9%.

Technical Analysis: Pound Sterling remains supported near 1.2600

The Pound Sterling trades inside a Falling Channel formation on a daily timeframe in which each pullback move is considered as a selling opportunity by the market participants. The 200-day Exponential Moving Average (EMA) near 1.2570 provides support to the Pound Sterling bulls.

On the downside, the psychological level of 1.2500 plotted from December 8 low will also be a major support for the Cable.

The 14-period Relative Strength Index (RSI) hovers near 40.00. A bearish momentum could trigger if the RSI decisively breaks below the same.