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Pound Sterling holds gains as Andrew Bailey urges regulators to trim retail prices


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  • Pound Sterling has rebounded sharply as BoE Bailey has assured inflation softening.
  • Steady United Kingdom Sevices PMI provided some strength to the Pound Sterling.
  • Rishi Sunak has assured full utilization of monetary and fiscal tools to bring down stubborn inflation.

The Pound Sterling (GBP) has recovered sharply as Bank of England (BoE) Governor Andrew Bailey has urged industry regulators not to overcharge customers. The GBP/USD pair has winded up its corrective move as BoE Bailey believes that moves by regulators would help in slowing down inflationary pressures. Andrew Bailey is confident that stubborn inflation will come down but borrowers would face severe consequences and the timing of the rate cut is uncertain.

The BoE has been taking some strong steps to strengthen financial conditions. United Kingdom’s inflation looks set to pick pace again as labor shortages are expected to elevate. This week, UK PM Rishi Sunk also showed confidence that price stability will be achieved.

Daily Digest Market Movers: Pound Sterling holds intraday gains     

  • United Kingdom Prime Minister Rishi Sunak promised this week to fully utilize monetary and fiscal policy to tame persistent inflation.
  • UK Sunak cited that inflationary pressures are showing a higher persistence than expected but that doesn’t state that the policy measures used are the wrong ones.
  • The Britain government has announced that it is committed to spending 11.6 billion pounds on international climate finance.
  • Firms are ramping up investments in Germany to compensate for custom delays and tedious bureaucracy inspired by an exit of Britain from the European Union.
  • Financial Times reported that the Bank of England is planning to discuss with international banks to set up subsidiaries.
  • Higher inflationary pressures in the UK economy are backed by shortages of labor and 45-year high food price inflation.
  • Labor shortages are expected to elevate further as almost one in three female workers are expected to consider early retirement because of health issues.
  • UK Finance Minister Jeremy Hunt gave his backing to the country’s financial regulator Financial Conduct Authority (FCA) to ensure banks are passing on better savings rates to consumers, as reported by Reuters.
  • UK’s June Services PMI matched expectations and landed at 53.7.
  • The monthly survey by Citi Bank and polling firm YouGov showed that consumer inflation expectations for one year have increased to 5.0% in June from 4.7% in May.
  • Financial markets are anticipating that the BoE will eventually raise interest rates to 6.25% from the current state of 5%.
  • The risk profile is turning positive amid an improvement in appeal for risk-sensitive assets.
  • The US Dollar Index (DXY) has dropped after printing a fresh four-day high at 103.40 as investors are cautious ahead of Automatic Data Processing (ADP) Employment and Services PMI data.
  • The US ADP report is expected to show fresh additions of 228K vs. the former addition of 278K.

Technical Analysis: Pound Sterling upside seems restricted

Pound Sterling is demonstrating a broader non-directional performance. The downside is well-supported around 1.2688 while the upside is restricted near 1.2735 as investors are awaiting United States Employment data for potential triggers. Short-to-long-term daily Exponential Moving Averages (EMAs) are upward-sloping, indicating the upside bias is solid.

Buyers could add positions if Cable manages to jump firmly above 1.2740. The upside bias could fade if it corrects below the psychological support of 1.2680.

BoE FAQs

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).

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.

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.

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.