Pound Sterling Reclaims its weekly high amid positive market Optimism.
The Pound Sterling (GBP) regains its weekly high amid Increased risk taking. Despite the fact that the UK economy is on the verge of a Technical Recession. The GBPUSD pair remains positive. This is Attributable to weak family Expenditure and Widespread Pessimism among business owners about the Economic Prospects.
The Bank of England (BoE) is expected to struggle to make a conclusion. Due to Persistently rising Inflation and recession fears. Policymakers will find it difficult to adhere to a tight Interest rate stance. Despite investors changing their bets to the May monetary policy meeting for the Federal Reserve’s (Fed) first rate cut, which was earlier expected in March, the market remains optimistic. Fed policymakers have long supported the narrative of higher interest rates. In order to ensure that inflation returns to the 2% objective on time.
Daily Market Movers: Pound Sterling Capitalizes on Risk-On Mood
Despite difficult conditions for Bank of England policymakers in maintaining a restrictive monetary policy stance following a significant decline in Retail Sales data for December, the pound sterling continues to advance above the critical resistance of 1.2700.
The UK Office for National Statistics (ONS) revealed that annual retail sales unexpectedly decreased 2.4%, when investors expected An increase of 1.1%. The ONS reported that households were starting their Christmas shopping earlier than normal. Foodstore sales were drastically down.
A steep drop in consumer expenditure implies a worsening cost-of-living crisis caused by increasing interest rates and persistent price pressures.
Investors expect a technical recession in the UK economy as the cost-of-living crisis worsens.
This has heightened fears of a recession in the UK economy. As low consumer spending would discourage enterprises from maintaining current production levels.
It is worth noting that, according to the most recent ONS projections. The UK economy’s Q3 Gross Domestic Product (GDP) growth rate fell by 0.1% in 2023. If the economy contracts again in the fourth quarter. It will be called a technical recession.
On the inflation front, the UK Economy operates with core inflation at 5.1%. And the service price index at 6.4%. Which are the BoE’s favored inflation indicators when making monetary policy decisions.
Price pressures in the UK economy are stubborn when compared to inflation in other Group of Seven economies. Making it difficult for policymakers to choose between a restrictive policy stance for higher inflation. And the unwinding of tight interest rates to keep the economy from entering a recession.
Despite lower Fed Rate cut Expectations, the appeal of risk sensitive assets remains strong.
This week, market Participants will be focused on the Preliminary S&P Global PMI for January. Which will be released on Wednesday. The Economic data is Projected to stay positive.
Meanwhile, market Sentiment remains positive. Despite the Federal Reserve’s (Fed) likelihood of leaving interest rates steady in March Increasing Dramatically.
As per CME FedWatch Traders expect the Fed to hold interest rates steady in March by more than 54%.
The US Dollar Index (DXY) has fallen to around 103.20 on a Positive market Sentiment. Ten year US Treasury yields have fallen to about 4.12%.
