Pound Sterling awaits UK Employment, inflation data for fresh guidance

• Pound Sterling oscillates in a tight range as investors seek fresh triggers.
• The UK Employment and inflation data will provide fresh guidance on interest rates.
• BoE Mann maintains the hawkish rhetoric while Breeden and Pill focus on how long interest rates should remain higher.

The Pound Sterling (GBP) is back in its old range after a mild correction during Friday’s European session. The downside for the Pound Sterling seems cushioned as Bank of England (BoE) policymaker Catherine Mann delivers hawkish guidance on interest rates. 

On Thursday, Catherine Mann maintained a hawkish stance as risks to inflation shocks have leaned on the upside due to the deepening Red Sea crisis. The Pound Sterling tends to attract higher foreign inflows if the BoE keeps interest rates restrictive for longer.

While Catherine Mann supports further policy tightening, other policymakers such as Bank of England Chief Economist Huw Pill and Deputy Governor Sarah Breeden discuss how long interest rates should be kept at their current level.

Amid an absence of precise guidance on interest rates by BoE policymakers, United Kingdom’s labor market and inflation data will be keenly watched by the market participants, which are scheduled for next week. Softening price pressures and easing labor market conditions could propel hopes of early rate cuts by the BoE, weighing on the Pound.

Daily Digest Market Movers: Pound Sterling consolidates while US Dollar turns subdued

• Pound Sterling remains rangebound slightly above 1.2600 as investors await economic data that could provide fresh outlook on interest rates.
• Upbeat wage growth data out next week could push back expectations of early rate cuts by the Bank of England.
• This week, BoE Chief Economist Huw Pill and Deputy Governor Sarah Breeden said fears of persistent inflation are well contained in the forecasted range.
• BoE policymaker Catherine Mann is worried about deepening supply chain disruptions due to the crisis in the Red Sea. 
• On Thursday, Catherine Mann said trade-route issues between Asia and Europe could propel corporate pricing, which will result in stubborn inflation outlook.
• Catherine Mann is one of two policymakers who voted for an interest rate hike by 25-basis points (bps) in the last monetary policy meeting. She said her hawkish vote was based on upside risks to inflationary pressures.
• Meanwhile, the US Dollar, which is measured by the DXY Index, surrendered its recovery and came back inside a three-day trading range.
• The US Dollar Index (DXY) remains lackluster in the past three trading sessions as no Federal Reserve policymakers provided a concrete time frame for rate cuts.
• Geopolitical uncertainty has led to a gloomy market mood,  as Israeli Prime Minister Benjamin Netanyahu rejected a ceasefire proposal, citing truce terms proposed by Hamas as delusional.
• Meanwhile, investors await the United States inflation data for January, which is scheduled for Tuesday. The consumer price inflation data will provide a fresh outlook on interest rates.

Technical Analysis: Pound Sterling remains struck above 1.2600

Pound Sterling oscillates in a tight range of 1.2580-1.2640 for the past three trading sessions amid uncertainty over the timing of rate cuts by the BoE and the Fed. The GBP/USD pair trades in a Descending Triangle chart pattern formed on a daily time frame, which indicates a volatility contraction but with a downside bias.

Downward-sloping trendline of the descending triangle formation is plotted from December 28 high at 1.2827 while the horizontal support is placed from December 13 low around 1.2500.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a probable consolidation ahead.