The British pound found stability near the $1.215 level on Monday, as markets were monitoring a range of economic indicators that may influence the Bank of England’s monetary policy trajectory.
Investors are waiting for key UK unemployment data and PMI flash figures expected on Tuesday.
In September, retail sales in Britain saw a 0.9% month-over-month decline, exceeding the projected 0.2% decrease, while other data indicated that inflation remained elevated despite the series of interest rate hikes implemented by the BoE.
Last Friday, Governor Andrew Bailey addressed the recent inflation figures for September, which didn't drop as substantially as most economists had anticipated. He mentioned that these numbers were in line with the central bank's expectations, and also highlighted the somewhat favorable reduction in core inflation.
"It was not far off what we were expecting. Core inflation fell slightly from what we were expecting and that's quite encouraging," Bailey said.
The annual rate of core inflation in the UK — which excludes food and energy prices — slowed to 6.1% in September from 6.2% in August.
Bailey anticipated a significant decrease in the headline inflation rate when the October figures are released, largely due to the high energy prices from 2022 no longer affecting the annual comparison.
The official also pointed to wages being a matter of concern for the BoE.
"Pay growth as measured is still well above anything that's consistent with the (inflation) target," he said. "I understand, though, that people will want to see the evidence that inflation is coming down. I think we can see that evidence. I think that by the end of the year, we'll see more evidence of that."
On Friday, the credit rating agency Moody's revised its outlook for the UK from “negative” to “stable”.
Shaun Osborne, head currency strategist at Scotiabank, said that “gains might be hard to come by” for the pound to dollar rate in the short run due to recessionary pressures:
“A little over a year on from the Truss government debacle, Moody’s lifted its negative credit outlook on the UK, moving it to stable late Friday. Challenges remain. Recessionary forces are strengthening while the Bank of England is reluctant to concede that its inflation-fighting job is complete. September jobs data and October PMIs are reported tomorrow. Sterling may continue to find support on weakness to the 1.20 area in the short run but gains may be hard to come by for now.”
In a GBPUSD technical analysis, Osborne was neutral-to-bearish on the currency pair, writing that cable could trade around the 1.21 area in the near future:
“Intraday price action looks soft, with the pound losing ground through the European morning session to trade back to the mid-1.21 area. Cable slippage to the 1.21 area or just below found good support last week but gains to the upper 1.21 area are attracting firm selling pressure as well. Weak trend signals suggest choppy range trading may continue in the short run.”
Chris Turner, Global Head of Markets at Dutch bank ING, wrote that the upcoming data releases on Tuesday might surprise to the downside, which may have a negative effect on the pound:
“Sterling has been stabilizing after a soft week. The UK calendar this week looks slightly sterling negative in that tomorrow's release of the services PMI might disappoint and we also might see some slight softening in the delayed jobs data. However, EUR/GBP has been unable to hold a break over the 0.8700 area and we think it is a little too early for that break, especially since the eurozone data could be soft this week too.”
At the time of writing, the GBP/USD pair was trading at $1.217, up 0.05% on the day, as per MarketWatch data. The euro to pound rate traded at 0.8724, with sterling weaking 0.14% against the common currency as of 12:40 GMT.
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