Pound Sterling remains on tenterhooks ahead of US Inflation data

• The Pound Sterling turns sideways near 1.2680 after correcting from 1.2700 with eyes on US inflation data for March.
• The UK monthly GDP data for February will provide fresh cues about the economy’s performance.
• The UK’s rising cost-of-living crisis supports BoE rate cut prospects.

The Pound Sterling (GBP) exhibits uncertainty in Wednesday’s London session ahead of the United States Consumer Price Index (CPI) data for March, which will be published at 12:30 GMT. Economists expect US inflation to remain relatively high in March due to increasing Oil prices, insurance costs and rentals.

Hot price pressures would shift market expectations of Federal Reserve (Fed) rate cuts to the third quarter of this year. On the contrary, softer-than-expected numbers would likely reinforce speculation of rate cuts in June.

On the domestic front, the Pound Sterling will be guided by the United Kingdom's monthly Gross Domestic Product (GDP) and the factory data for February, which will be published on Friday.

The GDP data will give a snapshot of the economy's state. The factory data represents the country’s manufacturing sector, a leading indicator of overall demand. Weak numbers would boost expectations for Bank of England (BoE) early rate cuts, while better-than-expected data will indicate that the economy is returning to recovery.

Daily digest market movers: Pound Sterling awaits US inflation for fresh guidance

• The Pound Sterling faces some sell-off while attempting to surpass the round-level resistance of 1.2700 amid uncertainty ahead of the United States consumer price inflation data for March. 
• Annual headline inflation is forecast to accelerate to 3.4% from the 3.2% recorded in February. Core inflation, which strips off volatile food and energy prices, is expected to decelerate to 3.7% from 3.8% in the same period. On a monthly basis, both headline and core CPI are forecasted to have increased at a slower pace of 0.3% against 0.4% in February. 
• The expected monthly rise in inflation would likely be insufficient to convince Federal Reserve (Fed) policymakers that inflation is returning to the desired rate of 2%. For inflation to come down to the 2% target, the monthly CPI needs to increase at a steady pace of 0.17% for the entire year.
• The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, rebounds to 104.15. Uncertainty among market participants ahead of the US inflation data offered support to the US Dollar. The inflation data will provide hints about when the Federal Reserve could start reducing interest rates.
• On the United Kingdom front, the rising burden of higher cost of living on households has prompted demand for rate cuts by the Bank of England. The latest survey by the Financial Conduct Authority (FCA) showed that individuals struggling to pay bills and credit repayments fell in January annually. The agency estimated that 7.4 million individuals faced problems in addressing their monthly expenses, lower than the 10.9 million recorded in January 2023 but still significantly higher than the 5.8 million recorded in February 2020.
• Investors expect the BoE to pivot to rate cuts after the June meeting. The speculation was propelled after Governor Andrew Bailey said market expectations for two or three rate cuts this year are “reasonable.”

Technical Analysis: Pound Sterling faces pressure near 1.2700

The Pound Sterling struggles to extend upside above the round-level resistance of 1.2700. The GBP/USD pair is expected to remain sideways as investors await the US CPI data. The Cable trades inside Tuesday’s trading range, suggesting a sideways trend. The 200-day Exponential Moving Average (EMA) near 1.2570 supports the Pound Sterling bulls.

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

The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.