Pound sterling has maintained recent gains of roughly 1.2750.

The Pound Sterling (GBP) is hovering around 1.2750 against the US Dollar (USD) in Wednesday’s London session. Mostly unmoved by the United Kingdom’s (UK) monthly Gross Domestic Product (GDP) and Industrial Production data for April. The UK Office for National Statistics (ONS) announced that the economy remained flat. As economists had predicted, indicating a slow start to the second quarter.

UK manufacturing output and industrial production fell sharply.

The UK economy did not grow in April, despite a small expansion in the services sector was countered by a decrease in Industrial Production and Construction Output. The reduction in manufacturing sector activity was caused by lower production in the pharmaceutical. And food industries, according to the report.

Manufacturing Output and Industrial Production figures. Which reflect factory activity, decreased faster than predicted in April after rising in March. Monthly manufacturing production fell sharply by 1.4%, compared to projections of a 0.2% reduction. During the same period, Industrial Production fell by 0.9%, compared to predictions of an only 0.1% loss.

Weak factory data implies both families and businesses are struggling to shoulder the burden of the Bank of England’s high interest rates. This could drive the BoE to begin relaxing monetary policy sooner.

However, other indicators may compel policymakers to postpone requests for rate cuts. Wage growth in the UK remains high. Posing a significant barrier to the Bank of England’s return to policy normalization. Wages increased consistently by 6.0% in the three months to April, much beyond what is required for inflation to revert to the ideal rate of 2%.

Daily Market movers: Pound Sterling strengthens despite UK economic recovery stalling.

The pound sterling is marginally higher versus the US dollar. Ahead of the US Consumer Price Index (CPI) data for May and the Federal Reserve’s (Fed) monetary policy announcement in New York. The inflation figures will have a substantial impact on market expectations for when and how much the Fed will decrease interest rates this year. Stronger-than-expected job creation and wage growth have already reduced expectations. That the Fed will begin decreasing key borrowing rates at the September meeting.
Annual core inflation, excluding volatile food and energy prices, is expected to have slowed to 3.5% from 3.6% in April. During the same period, headline inflation is estimated to have gradually increased by 3.4%. While monthly headline inflation is expected to have increased at a lesser rate of 0.1% from the previous release of 0.3%, the core CPI is expected to have remained stable at 0.3%.

Market sentiment has remained cautious ahead of US inflation data and the Fed’s announcement.

Volatility is expected to be high in Wednesday’s American session. As US inflation data is followed by the Fed’s monetary policy announcement. The Fed is much anticipated. to maintain rates at their current levels of 5.25%-5.50%. As a result, investors will pay close attention to the Fed’s dot plot. Which shows where officials believe the federal funds rate will be in the medium and long term.

Recent economic data implies that labor market conditions are tight and price pressures remain high, hence Fed members are projected to be more hawkish than the previous dot plot. Officials are expected to argue for at most two rate cuts this year, compared to three projected in March’s dot plot.