Daily digest market movers: Pound Sterling extends upside as US Dollar weakens
- The Pound Sterling advances to the round-level resistance of 1.2800 amid a cheerful market mood. The appeal for risk-sensitive assets strengthened after the Federal Reserve maintained its projections of three rate cuts for this year in its monetary policy meeting on Wednesday. Fed policymakers didn’t dial down their rate-cut projections despite inflation remaining hotter than expected in February.
- The Fed continued with its argument that rate cuts are appropriate only if it gains greater confidence that inflation will sustainably decline to the 2% target. However, it mentioned that the underlying story of price pressures moving in the right direction has not changed despite the recent acceleration in inflation.
- Going forward, the Pound Sterling is expected to face intense volatility as the Bank of England will announce the interest rate decision at 12:00 GMT. The BoE is expected to keep its interest rates unchanged at 5.25% for the fifth time in a row. Investors will closely pay attention to vote pattern from policymakers, particularly from Catherine Mann and Jonathan Haskel, who have been favoring more interest rate hikes.
- The BoE is expected to maintain the argument that rate cuts should be considered only after gaining confidence that inflation will sustainably return to 2%. However, February’s inflation readings, released on Wednesday, could have strengthened their confidence that inflation is moving in the right direction. This could allow them to discuss when to begin reducing interest rates.
- UK stubborn inflation has been driven by high service inflation, which is fed by strong wage growth. Investors will keenly focus on the wage growth outlook as earnings are increasing at a higher pace than what is required to bring down inflation sustainably to 2%.
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