Daily digest market movers: Pound Sterling is down as US Dollar rebounds
- The Pound Sterling falls further to the crucial support of 1.2600 as the US Dollar rebounds sharply amid uncertainty ahead of the United States core PCE price index data for February. The Federal Reserve’s (Fed) preferred inflation measure could provide some cues about when the central bank could start reducing interest rates.
- Stubborn inflation and a strong economic outlook in the US could allow the Fed to delay its rate cut plans. The Fed’s latest dot plot, released last week, pointed to three rate cuts for this year, but a slower progress in inflation declining to the 2% target could also result in fewer cuts.
- Apart from the risk-off mood, market expectations for the Bank of England’s interest rate outlook will drive the next move in the Pound Sterling. A sharp decline in the UK’s inflation data for February has uplifted expectations for the BoE to begin reducing interest rates early in the June policy meeting. Before the release of the soft inflation data and slightly dovish interest rate guidance from the BoE, rate cuts were majorly expected starting from the August meeting.
- In its last meeting, the BoE was observed as slightly dovish as no policymaker voted for a rate hike for the first time since September 2021. Catherine Mann, who remains a hawk, dropped her rate hike call as she observed that consumers are reluctant to pay higher prices on services such as travel and hospitality, she said in an interview with Bloomberg. Mann added that firms are cutting working hours in times when more employment is required. She further added that the number of workers in the labor market will increase due to the government's cuts to social security rates.
- This week, the UK’s economic calendar is light. Investors will look for revised Q4 2023 Gross Domestic Product (GDP) estimates. Any significant change from preliminary estimates will influence the Pound Sterling. The preliminary estimates showed that the UK economy entered a technical recession in the second half of 2023 after contracting by 0.3% in the October-December quarter
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