• Sun. Jul 14th, 2024

Pound Sterling prints a fresh four-day high on upbeat market mood

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  • Pound Sterling stabilizes above 1.2600, supported by a risk-on mood.
  • UK housing demand drops sharply due to rising mortgage rates.
  • Investors hope that policy divergence between the Fed and BoE will vanish this month.

The Pound Sterling (GBP) is holding its ground on Wednesday as a higher risk appetite among market participants continues to improve the appeal for risk-sensitive assets. The GBP/USD pair remains well-supported as investors hope that the policy divergence between the Federal Reserve (Fed) and the Bank of England (BoE) will vanish this year. More interest rate hikes from the BoE are in the pipeline as the core Consumer Price Index (CPI) data remains sticky near its all-time peak.

In the battle against persistent inflation, the UK’s factory activities and its property sector have been major victims. British firms continue to operate at lower capacity due to a poor demand outlook, and higher mortgage rates have forced homebuyers to postpone their purchases. The BoE’s Broadbent warned that inflation will not fade as quickly as it emerged despite soft energy and fuel prices.

Daily Digest Market Movers: Pound Sterling extends recovery as US Dollar retreats

  • Pound Sterling gathers strength for a decisive break above the immediate resistance of 1.2650 amid an upbeat market mood.
  • The asset secures an auction above 1.2600 as investors hope that the Fed-BoE policy divergence will vanish since the former is expected to keep interest rates steady.
  • The BoE doesn’t have the comfort of pausing the policy-tightening spell in the current scenario as evidence that UK core inflation will loosen up is absent.
  • UK core inflation is nominally lower at 6.9% from its all-time peak of 7.1% despite BoE raising interest rates to 5.25%.
  • UK PM Rishi Sunak’s promise of halving inflation by year-end is at stake, which would keep the central bank on the policy-tightening path.
  • The major catalyst behind persistent core inflation is the strong wage growth in the British economy. The UK’s jobless rate rose to 4.2% in July, but wage growth remained robust, which indicated that firms were heavily spending to retain talent.
  • This week, BoE Deputy Governor Ben Broadbent said that inflation will not fade as quickly as it emerged despite soft energy and fuel prices. He warned that interest rates will remain higher for a longer period.
  • BoE’s battle against stubborn inflation has come with plenty of consequences for the UK’s economic outlook. Repercussions of higher interest rates have widened to the property sector.
  • UK property website Zoopla forecasted on Wednesday that new home purchases in 2023 are on course to decline by 21% to their lowest level since 2012 as homebuyers postpone their purchases due to higher mortgage rates, Reuters reported.
  • An influential group of UK MPs stated that they must take a tougher stance on China over its severe human rights abuses and help Taiwan build its defenses to deter a potential attack from Beijing, reported by The Guardian.
  • Major strength in the Pound Sterling on Wednesday came from bullish market sentiment, which was propelled by softer United States JOLTS Job Openings for July.
  • US Bureau of Labor Statistics reported on Tuesday that employers invited applications for 8.827M vacancies vs. June’s reading of 9.165M. Market participants anticipated higher job openings at 9.465M.
  • A significant drop in labor demand boosts hopes of ‘higher for longer’ interest rates by the Federal Reserve (Fed) and challenges expectations of further policy tightening this year.
  • After labor demand data, investors shift focus to ADP’s Employment Change data for August, which estimates private payroll additions.
  • The last four reports have shown numbers significantly above market consensus. This time, the market consensus is for an increase in US private payrolls of 195,000.
  • Later this week, Nonfarm Payrolls (NFP) and ISM Manufacturing PMI will be keenly watched.

Technical Analysis: Pound Sterling approaches 1.2700

Pound Sterling strives for a confident stabilization above the round-level resistance of 1.2600, capitalizing on bullish market sentiment. The Cable oscillates in the previous day’s range ahead of crucial US economic data, which will guide further direction. The broader trend is still weak as the 20 and 50-day Exponential Moving Averages (EMAs) have already delivered a bearish crossover.

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