Pound Sterling capitalizes on improved market sentiment, UK labor market, PMI data eyed

Pound Sterling juggles around 1.2150 as investors shift focus to the UK employment data.
Economists see a decrease in employment in the quarter to August due to a poor demand outlook.
The BoE is anticipated to keep interest rates unchanged at its November monetary policy meeting.

The Pound Sterling (GBP) revives strongly ahead of the UK Employment data, which will be published on Tuesday, as the risk profile turns cheerful. The broader GBP/USD pair outlook still remains vulnerable as economists expect employment levels to decrease again in the three months to August, in a sign that firms are cutting back on their workforces due to a dismal demand outlook.

Higher interest rates by the Bank of England (BoE) and stubborn price pressures have squeezed households’ real income significantly, weighing on demand. Deepening Israel-Palestine tensions add to uncertainty and have the potential to cause higher energy prices, adding to inflation pressures. In this context, investors see the BoE keeping interest rates unchanged for the second straight time in November.

Daily Digest Market Movers: Pound Sterling jumps as US Dollar falls

Pound Sterling soars after consolidating for more than a week as the interest rates are seen unchanged by the Bank of England monetary policy meeting, which is scheduled for next week.
The majority of UK economic data released in October indicates that the BoE will not raise interest rates further, keeping them at 5.25% for a second straight meeting. The UK Manufacturing PMI continued to remain below the 50.0 threshold and Retail Sales contracted, signaling weak economic activity and likely denting consumer inflation expectations.
Consumer spending has remained weak in September as both high inflation and borrowing rates have squeezed households’ pockets.
UK inflation topped expectations marginally in September but BoE Governor Andrew Bailey, in an interview with Belfast Telegraph, remained confident over a marked fall in inflation next month.
Bailey said that a sharp decline in wage growth should bring down inflation to 2%.
The GBP/USD pair trades back and forth around 1.2150 but an action move is expected after the release of labor market data, which will be published on Tuesday at 06:00 GMT.
This month, the UK Office for National Statistics (ONS) postponed part of the employment data release as the agency said it failed to get responses from some private players.
As per the estimates, the UK employers shed 198K jobs in the three months to August. In the quarter to July, the labor force saw a drawdown of 207K. The Unemployment Rate is expected to remain unchanged at 4.3%. Claimant Count Change is seen rising by 2.3K in September against a 0.9K increase in jobless claims in August.
UK employers cut back on their workforce and inventory due to a poor demand outlook. Last month, UK firms said that higher borrowing costs and persisting price pressures have dented households’ demand.
Last week, ratings agency Moody's revised UK's outlook to "stable" from "negative", saying policy predictability has been restored after heightened volatility last year around the so-called "mini-budget" crisis under former Prime Minister Liz Truss, Reuters reported.
The market mood remains downbeat as Israel-Palestine tensions have increased due to the Gaza hospital blast, with more than one thousand casualties.
The US Dollar trades directionless in a narrow range above 106.00 as investors shift focus to the Q3 Gross Domestic Product (GDP) data scheduled for Thursday.
Meanwhile, neutral guidance on interest rates from Federal Reserve (Fed) Chair Jerome Powell and his colleagues has restricted upside in the US Dollar.
Cleveland Fed Bank President Loretta Mester said on Friday that the policymakers need to be “nimble” amid current economic uncertainties.

Technical Analysis: Pound Sterling climbs above 1.2200

Pound Sterling jumps above 1.2200 ahead of the UK employment data to have a more complete set of economic data for shaping the BoE’s monetary policy action in November. The 20-day Exponential Moving Average (EMA) at around 1.2200 continues to act as a barricade for the Pound Sterling bulls. The broader GBP/USD outlook remains vulnerable amid a death cross signal by the 50-day and 200-day EMAs.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

What is Quantitative Easing (QE) and how does it affect the Pound?

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

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