Daily digest market movers: Pound Sterling falls amid cautious market mood
- The Pound Sterling drops from the round-level resistance of 1.2700 amid caution ahead of the United Kingdom’s Spring budget and packed United States economic calendar.
- The market participants will keenly focus on the Spring budget to be announced by Chancellor Jeremy Hunt. An indication of higher fiscal stimulus through tax cuts, a decline in national insurance rates, and significant public spending plans against revenue-raising tools would weaken hopes of early rate cuts by the Bank of England as fiscal stimulus could fuel inflationary pressures.
- The Conservative government’s plan is expected to lean towards spurring growthto avoid the economy falling into a recession again. However, a big stimulus package isn’t expected.
- BoE policymakers have indicated that the technical recession observed in the second half of 2023 was shallow.
- The economy is probably back on track for growth as Retail Sales and PMIs are improving meaningfully. However, an array of liquidity measures is required to confirm that the economy must not get derailed from the path of recovery.
- On the contrary, the limited scope of fiscal measures could prompt chances of early rate cuts by the BoE. Markets expect the BoE to start reducing interest rates in August, when inflation is expected to return to the 2% target before increasing again.
- Meanwhile, the US Dollar rebounds after printing a fresh two-day low near 103.70 as the market sentiment turns cautious ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress on Wednesday and a bunch of US economic data such as the ISM Services PMI, ADP Employment Change, JOLTS Job Openings, and the Nonfarm Payrolls.
- Powell is expected to warn about the potential risks of early rate cuts, reiterating the need for more evidence to confirm that inflation will return to the 2% target.
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