Pound Sterling rebounds as market mood improves ahead of US core PCE price index data.

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• Pound Sterling rebounds as market mood improves ahead of US core PCE price index data.
• High UK inflation would allow BoE policymakers to maintain a hawkish tone on interest rates.
• The US Dollar aims to advance further on robust US GDP growth.

The Pound Sterling (GBP) bounces back strongly as focus shifts to the interest rate decisions by the Bank of England (BoE) and the Federal Reserve (Fed) next week. Both central banks are widely anticipated to keep the monetary policy unchanged for the fourth straight time but guidance on interest rates for the entirety of 2024 will be keenly watched.

BoE policymakers are expected to refrain from rate-cut discussions as the United Kingdom economy is still experiencing significantly higher inflationary pressures than the US. There, however, policymakers could provide some cues about future interest rate-cuts. The Summary of Economic Projections (SEP) published after the last Fed meeting showed members on average predicting three rate cuts in 2024.

Before the Fed’s interest rate decision, market participants will focus on the core Personal Consumption Expenditure (PCE) price index data for December, which will be published at 13:30 GMT. Fed policymakers could emphasize on rate-cuts after the first-half of 2024 if the underlying inflation data remains stubbornly high.

Pound Sterling maintains auction above the round-level resistance of 1.2700 ahead of the . The price action in the GBP/USD pair demonstrates a steep contraction in volatility. The near-term demand for the Cable is fading as it is struggling to sustain above the 20-period Exponential Moving Average (EMA), which trades around 1.2700. An inventory adjustment auction after a sharp rally is visible on the daily timeframe, which signifies an absence of a potential economic trigger for fresh guidance.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00, indicating absence of fresh impetus.

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