Pound Sterling tumbles amid cautious market mood, focus is on Fed-BoE policy

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<li><strong>Pound Sterling faces pressure ahead of monetary policies by the Fed and the BoE.</strong></li>
<li><strong>BoE policymakers will be tested on the grounds of high inflation and bleak economic outlook.</strong></li>
<li><strong>The Fed is expected to define how it will fit 75 basis points rate reduction in 2024.</strong></li>
<p>The Pound Sterling (GBP) drops as investors turn cautious ahead of a busy week. The GBP/USD pair falls gradually ahead of the interest rate decisions by the <a href="https://www.fxstreet.com/macroeconomics/central-banks/boe">Bank of England</a> (BoE) and the Federal Reserve (Fed), which are expected to leave rates unchanged for the fourth time in a row.</p>
<p>While the BoE is expected to hold steady, guidance on the interest rate outlook will be the key factor for further action in the Pound Sterling. The BoE is in a balancing act between vulnerable economic conditions in the domestic and the overseas market and stubborn price pressures. The maintenance of higher interest rates for a longer period by the BoE could dampen labor market and demand conditions while a dovish signal will ramp-up price pressures again.</p>
<p>Market mood seems broadly cautious due to Middle East tensions and Fed’s monetary policy announcement. Investors will keenly watch whether the Fed will choose the March or May meeting for the first rate cut after a prolonged “rate-tightening” campaign.</p>
<h2>Daily Digest Market Movers: Pound Sterling faces a sell-off amid risk-off mood</h2>
<li>Pound Sterling drops below the crucial support of 1.2700 as appeal fo risk-perceived assets weaken ahead of the monetary policies by the Federal Reserve and the Bank of England, which are scheduled for Wednesday and Thursday respectively.</li>
<li>Decision-making for BoE policymakers is expected to be very complicated as the United Kingdom economy is operating with high inflation and the economic outlook is vulnerable.</li>
<li>The UK economy witnessed a fall of 0.1% in growth in the third quarter of 2023 as businesses operated with lower capacity due to weak demand.</li>
<li>A similar performance is anticipated in the final quarter of 2023 as businesses were reluctant to utilize their full capacity or make fresh investment decisions to avoid higher interest obligations.</li>
<li>The UK economy would be considered to be in a technical recession if it contracts consecutively in the fourth quarter of 2023.</li>
<li>BoE policymakers consider core and service inflation while making decisions on interest rates, which are at 5.1% and 6.4%, significantly far from what the central bank wants, leaving no chance for consideration of a dovish decision, at least for now.</li>
<li>On Thursday, the BoE is widely anticipated to keep interest rates unchanged at 5.25% for the fourth time in a row. </li>
<li>It would be interesting to watch whether the BoE delivers a dovish guidance due to a deteriorating demand environment or continues to lean towards restrictive interest rates.</li>
<li>Meanwhile, the market mood remains quiet as investors digest Middle East tensions. </li>
<li>The US Dollar Index (DXY) is slightly higher to near 103.50 from Monday’s closing but is expected to remain lacklustre as investors await the Fed policy meeting.</li>
<li>Like the BoE, the Fed is also expected to keep interest rates unchanged in the range of 5.25-5.50% for the fourth straight time. </li>
<li>Market participants seem highly confident that the Fed will start reducing interest rates from May amid easing price pressures.</li>
<li>In today’s session, investors will keep the US JOLTS Job Openings data on radar. Investors anticipate that US employers posted fresh 8.75M jobs in December against 8.79M in November.</li>
<h2>Technical Analysis: Pound Sterling edges down from 1.2700</h2>
<p><a href="https://editorial.fxstreet.com/miscelaneous/GBP_USD%20(11)-638421969287879301.png" target="_blank" rel="noopener"><img decoding="async" src="https://editorial.fxstreet.com/miscelaneous/GBP_USD%20(11)-638421969287879301.png" style="width: 600px; height: 275px;" /></a></p>
<p>Pound Sterling witnesses significant offers near the crucial resistance of 1.2700 ahead of crucial <a href="https://www.fxstreet.com/economic-calendar/united-states">economic events</a>. On a daily time frame, <a href="https://www.fxstreet.com/currencies/gbpusd">the GBP/USD pair</a> demonstrates a Descending Triangle chart pattern formation, which indicates a sharp volatility contraction but with an upside bias. </p>
<p>Downward-sloping trendline of the aforementioned <a href="https://www.fxstreet.com/rates-charts/chart">chart</a> pattern is drawn from 28 December 2023 high at 1.2827 while the horizontal support is plotted from 21 December 2023 low at 1.2612. The 14-period Relative Strength Index (RSI) oscillates in the 40-60 range, which indicates a sideways performance ahead.</p>
<div data-cnt-module-topic="risk-sentiment" data-cnt-module-type="faq">
<h2>Risk sentiment FAQs</h2>
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<p>In the world of financial jargon the two widely used terms “risk-on” and “risk off&#8221; refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.</p>
<p>Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.</p>
<p>The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.</p>
<p>The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.</p>
<p><!–FAQ CONTENT MODULE ENDS HERE–></div></div>
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<br /><a href="https://www.fxstreet.com/news/pound-sterling-trades-in-a-tight-range-as-focus-remains-on-fed-boe-monetary-policies-202401300733">Source link </a></p><p>The post <a href="https://forextraderhub.com/pound-sterling-tumbles-amid-cautious-market-mood-focus-is-on-fed-boe-policy.html">Pound Sterling tumbles amid cautious market mood, focus is on Fed-BoE policy</a> first appeared on <a href="https://forextraderhub.com">Forex Trader Hub</a>.</p>

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