Pound Sterling trades with caution ahead of Fed-BoE policy, UK job data

The Pound Sterling trades broadly uncertain against its major currency peers, but upbeat against the US Dollar.
Investors expect the BoE and the Fed to leave interest rates unchanged at their current levels.
The USD Index faces selling pressure after a four-day rally above 100.00.

The Pound Sterling trades cautiously against its major currency peers, but 0.4% higher to near 1.3270 against the US Dollar (USD), during the European trading session on Monday. The British currency is expected to remain on tenterhooks amid uncertainty surrounding the Bank of England’s (BoE) monetary policy announcement on Thursday.

Investors expect the BoE to hold interest rates steady at 3.75%, with a 7-2 majority, as the spike in the oil price amid the closure of the Strait of Hormuz due to conflicts in the Middle East has prompted consumer inflation expectations in the entire world.

The situation of higher oil prices has come at a time when the United Kingdom (UK) was already struggling with inflation remaining well above the central bank’s 2% target for a longer period. In January, the UK headline Consumer Price Index (CPI) arrived lower at 3% Year-on-Year (YoY), but was significantly higher than the BoE’s 2% target.

On Thursday, investors will also focus on the employment data for the three months ending in January. The labor market data is expected to show that the ILO Unemployment Rate remained steady at 5.2%. Average Earnings Excluding Bonuses, a key measure of wage growth, is estimated to come in lower at 4% YoY from the previous reading of 4.2%.

Though the Pound Sterling is broadly under pressure, it is outperforming the US Dollar (USD). The Cable gains as the US Dollar retraces after a four-day winning streak. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects to near 100.00 from its over nine-month high of 100.54 posted on Friday.

This week, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday, in which it is expected to leave interest rates unchanged in the current range of 3.50%-3.75%.