Pound Sterling consolidates as focus shifts to BoE hearings

• The Pound Sterling trades back and forth ahead of several BoE members’ hearings before the Treasury Committee.
• Traders expect that the BoE will cut interest rates by 25 bps in December.
• Nomura expects the Fed to leave interest rates unchanged in December.

The Pound Sterling (GBP) trades sideways against its major peers on Tuesday with investors focusing on the Monetary Policy Hearings, in which several Bank of England (BoE) policymakers – including Governor Andrew Bailey – will respond to questions before the Treasury Committee regarding the latest decisions on interest rates.

The hearings, which will start at around 10:00 GMT, could provide clues over the interest-rate outlook, a key driver for the Pound Sterling. Apart from Bailey, Deputy Governor Clare Lombardelli and Monetary Policy Committee (MPC) external members Alan Taylor and Catherine Mann will also participate in the hearings. 

Beyond the hearings, investors brace for another key event: the Consumer Price Index (CPI) data for October, which will be published on Wednesday. The inflation data will significantly influence market expectations for the BoE interest rate decision in the December meeting. 

Traders see a roughly 80% that the BoE will cut interest rates again by 25 basis points (bps) to 4.50%, according to Reuters. This would be the second interest rate cut by the BoE in a row and the third in this year.

The headline CPI is expected to rise by 0.5% after remaining flat in September on month. Annual headline inflation is estimated to have accelerated to 2.2% from the prior release of 1.7%. Economists expect the core CPI – which excludes volatile food and energy prices – to grow steadily by 3.2%.

Investors will also pay close attention to the service inflation data, a measure closely tracked by BoE officials when deciding on interest rates.  

Daily digest market movers: Pound Sterling clings to Monday’s recovery against US Dollar

• The Pound Sterling holds onto Monday’s recovery against the US Dollar (USD) near 1.2680 in London trading hours on Tuesday. The GBP/USD pair bounced back after posting a fresh six-month low near 1.2600 as the US Dollar’s rally appears to have stalled after posting a fresh year-to-date high. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, corrects from 107.00.
• The near-term outlook of the US Dollar remains firm as market participants expect the economic agenda of President-elected Donald Trump to boost inflationary pressures and prompt economic growth, a scenario that will lead the Federal Reserve (Fed) to deliver fewer interest rate cuts.
• Trump’s victory in both US houses (the Senate and the House and Representatives) and better-than-expected monthly Retail Sales data for October have led traders to pare back bets of an interest rate cut in the December meeting. The probability for the Fed to reduce interest rates by 25 bps to 4.25%-4.50% has diminished to 58.4% from 77% a month ago.
• Global brokerage firm Nomura expects the Fed to pause the policy-easing cycle in December. "We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause,” analysts at Nomura said. Nomura expects the Fed to cut interest rates by 25 bps in March and June meetings next year.

Technical Analysis: Pound Sterling gains firm footing near 1.2600

The Pound Sterling gains ground near 1.2600 against the US Dollar after discovering some buying interest. However, more broadly, the GBP/USD pair remains under pressure as it trades well below the 200-day Exponential Moving Average (EMA) at around 1.2850.

The 14-day Relative Strength Index (RSI) stays near 30.00, suggesting a strong bearish momentum.

Looking down, the psychological support of 1.2500 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the 200-day EMA.