Pound Sterling retreats on BoE Pill’s dovish guidance, dismal market mood

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<li><strong>Pound Sterling fails to hold gains inspired by upbeat S&amp;P Global Services PMI data.</strong></li>
<li><strong>The UK economy is on the brink of a technical recession.</strong></li>
<li><strong>BoE’s Pill signals that policymakers are discussing when the central bank could start reducing interest rates.</strong></li>
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<p>The Pound Sterling (GBP) struggles to hold the recovery move in the European session on Tuesday as the near-term outlook for risk-sensitive assets is bearish. The appeal of safe-haven assets is broadly upbeat as investors see the Federal Reserve (Fed) not rushing to cut interest rates. Receding risks of a recession in the <a data-fxs-autoanchor="" href="https://www.fxstreet.com/economic-calendar/united-states">United States</a> due to strong labor and retail demand are allowing plenty of time for <a data-fxs-autoanchor="" href="https://www.fxstreet.com/macroeconomics/central-banks/fed">Fed</a> policymakers to decide on rate cuts.</p>
<p>The GBP/USD fails to accelerate gains even though the UK’s S&amp;P Global/CIPS Services PMI has improved in January. The economic data rose to 54.3, better than expectations of 53.8 and the former reading of 53.4. The agency reported that a robust inflow of fresh orders, strong hiring in the last six months, and deepening prospects of rate cuts by the <a data-fxs-autoanchor="" href="https://www.fxstreet.com/macroeconomics/central-banks/boe">Bank of England</a> (BoE) led to a strong uptick in the Services PMI.</p>
<h2>Daily Digest Market Movers: Pound Sterling remains on edge as US Dollar rebounds</h2>
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<li>Pound Sterling struggles to grip the 1.2500 tentative support discovered in the late Asian session on Tuesday as the broader appeal is still downbeat amid a cautious market mood.</li>
<li>The outlook for risk-perceived assets is bearish as hopes of aggressive rate cuts by the Federal Reserve have waned due to resilient United States economic growth.</li>
<li>As per the CME Fedwatch tool, investors see a rate cut of 25 basis points (bps) in May from earlier expectations of March. </li>
<li>The US economy is performing well amid improving order books for the factory and IT sector, upbeat labor market conditions, and robust consumer spending.</li>
<li>Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday that lower risks to economic growth are allowing more time for the central bank to decide on rate cuts.</li>
<li>The Pound Sterling is also facing risks of a technical recession that could force Bank of England policymakers to lean towards a dovish interest rate stance.</li>
<li>It is worth mentioning that an economy is considered to be in a technical recession if it contracts for two straight quarters.</li>
<li>The United Kingdom’s economy contracted by 0.1% in the third quarter of 2023, and the likelihood of a technical recession is high as it is expected to underperform again.</li>
<li>A slight dovish guidance on interest rates from BoE Chief Economist Huw Pill has also dampened the appeal for the Pound Sterling.</li>
<li>BoE Pill said on Monday that the stance of “if” it is appropriate to cut interest rates has changed to “when.”</li>
<li>In the latest monetary policy statement, BoE Governor Andrew Bailey said inflation is moving in the right direction and kept borrowing costs “under review”.</li>
<li>Due to a light economic calendar, market participants will focus on the speech from BoE Catherine Mann, which is scheduled for Thursday.  Mann was one of two of nine Monetary Policy Committee (MPC) members who voted for a rate hike of 25 bps.</li>
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<h2>Technical Analysis: Pound Sterling trades close to seven-week low</h2>
<p><a href="https://editorial.fxstreet.com/miscelaneous/GBP_USD%20(17)-638428034107595011.png" target="_blank" rel="noopener"><img decoding="async" src="https://editorial.fxstreet.com/miscelaneous/GBP_USD%20(17)-638428034107595011.png" style="width: 600px; height: 275px;" /></a></p>
<p>Pound Sterling falls back to near seven-week low of 1.2520. Earlier, t<a data-fxs-autoanchor="" href="https://www.fxstreet.com/currencies/gbpusd">he GBP/USD pair</a> advanced to test the breakdown of the Descending Triangle <a data-fxs-autoanchor="" href="https://www.fxstreet.com/rates-charts/chart">chart</a> pattern formed on the daily time frame. The Cable is expected to face an intense sell-off after a soft test of the breakdown region near 1.2600.</p>
<p>The 14-period Relative Strength Index (RSI) has slipped below 40.00 for the first time in three months. More downside is possible amid an absence of divergence and oversold signals.</p>
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<h2>Inflation FAQs</h2>
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<p>Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.</p>
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<p>The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.</p>
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<p>Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.</p>
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<p>Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.<br />Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.</p>
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<br /><a href="https://www.fxstreet.com/news/pound-sterling-rebounds-while-broader-outlook-is-bearish-202402060800">Source link </a></p><p>The post <a href="https://forextraderhub.com/pound-sterling-retreats-on-boe-pills-dovish-guidance-dismal-market-mood.html">Pound Sterling retreats on BoE Pill’s dovish guidance, dismal market mood</a> first appeared on <a href="https://forextraderhub.com">Forex Trader Hub</a>.</p>