Pound Sterling looks vulnerable amid caution ahead of GDP data

• Pound Sterling surrenders gains as more interest rate hikes from the BoE are in the pipeline.
• United Kingdom factory activities will be keenly watched this week.
• UK PM Rishi Sunak might justify his promise of easing inflation to 5% by year-end.

The Pound Sterling (GBP) fails to keep recovery intact as more interest rate hikes from the Bank of England (BoE) are highly required. The GBP/USD pair discovers buying interest as the United Kingdom inflation is expected to remain well above 2% for the next four years. As the central bank is failing to achieve price stability sooner, further policy tightening cannot be ruled out.

This week, the UK manufacturing sector for June will be under scrutiny. The performance of British factories and preliminary GDP for the April-June quarter will be watched closely as the policy environment is highly restrictive and observers wonder if the economy will manage to avoid a recession. Meanwhile, claims from BoE Pill and the National Institute of Economic & Social Research (NIESR) indicate that UK PM Rishi Sunak will fulfill his promise of easing inflation to 5% by the end of 2023.

Daily Digest Market Movers: Pound Sterling surrenders against sour market mood

• Pound Sterling surrenders gains after facing resistance around 1.2750 as the risk-appetite theme fades and expectations of more interest rate hikes from the Bank of England.
• United Kingdom’s inflation is expected to remain elevated due to labor shortages as individuals choose early retirement.
• Lack of availability to fill higher vacancies would keep the wage growth pace stable ahead. NIESR forecasts that wage growth to hold at 6% next year as well as this year
• Prediction from NIESR showed that the UK inflation will fall to 5.3% by the year-end but the BoE would fail to return inflation to 2% before 2028.
• Contrary, BoE policymaker Huw Pill said that inflation will fall to 5% this year and the central bank will achieve price stability in the first half of 2025.
• The statement from Huw Pill and the NIESR forecast indicates that UK PM Rishi Sunak would meet his promise of halving inflation in 2023. Rishi Sunak made this promise when inflation was in the double digits.
• NIESR predicted that British economic output is not on track to return to its pre-pandemic peak until late 2024, representing zero growth over a five-year period.
• A tight labor market and resilience in consumer spending might allow the British economy to avoid recession this year.
• This week, the Pound Sterling will dance to the tune of the preliminary Q2 Gross Domestic Product (GDP) and factory activities data.
• Per estimates, the monthly GDP for June expanded at a pace of 0.2% against a contraction of 0.1%. On a quarterly basis, GDP is expected to deliver a stagnant performance, and the annual growth rate is expected to remain stable at 0.2%.
• Monthly Industrial and Manufacturing Production are expected to expand by 0.1% and 0.2% respectively.
• The market mood turns positive as investors digest caution ahead of the United States Consumer Price Index (CPI) data, which will be published on Thursday at 12:30 GMT.
• US inflation is expected to rebound after a series of decelerations as global oil prices rebound strongly.
• The US Dollar Index (DXY) corrects sharply to near 102.40 as Philadelphia Fed Bank President Patrick Harker delivers a neutral commentary on the interest rate outlook.  Fed Harker said the central bank is at the point where it can be patient and hold rates steady and let the monetary policy actions do their work.

Technical Analysis: Pound Sterling needs to sustain above 1.2700 to avoid casualty

Pound Sterling bounces back sharply and jumps to 1.2750 after discovering strength near the round-level support of 1.2700. The Cable moves higher but stays inside the restricted territory ahead of the release of crucial economic indicators. On a broader note, the asset seems vulnerable, consolidating near the 50-day Exponential Moving Average (EMA).