Pound Sterling faces sell-off near weekly high in a data-packed week

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  • Pound Sterling drops as market mood turns downbeat.
  • The UK employment and inflation data will be the major triggers in the week ahead.
  • January’s US inflation data will keep the US Dollar on its toes.

The Pound Sterling (GBP) drops vertically amid dismal market sentiment in Monday’s European session. The GBP/USD pair is expected to remain volatile as investors await the United Kingdom employment and the United States Consumer Price Index (CPI) data on Tuesday. 

UK Average Earnings will be in focus as Bank of England (BoE) Deputy Governor Sarah Breeden said last week that the longevity of higher interest rates will be based on how price pressures and wage growth data evolve. 

If wage growth momentum remains strong, the BoE will need to keep interest rates elevated to combat inflation, which will actually be positive for Pound Sterling as higher interest rates attract more foreign capital inflows.

In today’s session, a speech from Bank of England Governor Andrew Bailey will be keenly watched, and could set a fresh tone for March’s monetary policy meeting. In the last monetary policy statement, Bailey pushed back on rate-cut expectations amid low confidence that inflation will soon return to its 2% target.

Daily Digest Market Movers: Pound Sterling witnesses selling pressure on dismal market mood

  • Pound Sterling falls from fresh weekly high around 1.2650 ahead of a speech by Bank of England Governor Andrew Bailey.
  • Last week, BoE Deputy Governor Sarah Breeden and Chief Economist Huw Pill said the focus is now on how long interest rates will remain restricted. They ruled out fears of further policy tightening.
  • BoE policymakers, Jonathan Haskel and Catherine Mann warned that upside risks to price pressures supported the case for keeping interest rates restrictive for longer.
  • The Pound Sterling is expected to remain volatile amid a data-packed week. Employment, inflation, quarterly Gross Domestic Product (GDP) and Retail Sales data are lined-up for release.
  • Labor market data is scheduled for Tuesday. The Unemployment Rate for three months ending December is expected to drop to 4.0% from a former reading of 4.2%.
  • Price pressures in the United Kingdom region are most stubborn in comparison with other Group of Seven economies due to higher wage growth and service inflation. Therefore, Investors will keenly focus on the Average Earnings data.
  • Investors anticipate that wage growth excluding bonuses will decelerate to 6.0% in three months ending December against the former reading of 6.6%. In the same period, Average Earnings including bonuses are forecast to have grown at a slower pace of 5.7%.
  • Slower wage growth momentum would offer some relief to BoE policymakers and will increase hopes of an early rate-cut.
  • Meanwhile, the US Dollar Index (DXY) has discovered interim support near 104.00. The market mood is is downbeat as United States inflation data for January looming large, which will be published on Tuesday. 
  • US headline inflation is forecast to have grown at a slower pace of 3.0% against 3.4% in December. In the same period, core inflation that excludes volatile food and Oil prices is forecast to have decelerated slightly to 3.8% from 3.9%. 
  • The appeal for the US Dollar would drop if the inflation data eases further.

Technical Analysis: Pound Sterling drops to near 1.2600

Pound Sterling trades in a range of 1.2580-1.2640 from the past three trading sessions. The GBP/USD pair demonstrates a sharp volatility contraction ahead of the crucial economic events. The 50-day Exponential Moving Average (EMA) around 1.2630 is acting as a barricade for the Pound Sterling bulls. 

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


The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.