Pound Sterling remains calm as focus shifts to BoE monetary policy meeting

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• Pound Sterling trades in a tight range as investors eye BoE monetary policy decision for further action.
• The BoE is expected to keep interest rates unchanged amid easing labor market conditions and subdued retail demand.
• Deepening Middle East tensions dent demand for risk-perceived assets.

The Pound Sterling (GBP) struggles to find a direction on Monday as investors await the interest rate decision from the Bank of England (BoE) for further decision-making. The GBP/USD pair trades sideways as the market mood turns quiet, with investors also seeking fresh developments over the Israel-Palestine conflict to take further action. 

It is widely expected that the BoE will maintain the status quo on November 2 as subdued consumer spending and labor demand would not allow price pressures to accelerate further, but guidance on where the bank sees the interest rate peak and inflation will be keenly watched. Market participants would like to know if the central bank shares UK Prime Minister Rishi Sunak’s view of halving headline inflation to 5.4% by year-end.

Daily Digest Market Movers: Pound Sterling trades directionless

• The Pound Sterling is stuck in a tight range around 1.2120 as investors shift focus to the monetary policy meeting by the Bank of England, which will be announced on November 2.
• Soft labor demand, poor factory activity, weak consumer spending, and deepening geopolitical tensions are expected to allow BoE policymakers to keep interest rates unchanged at 5.25%.
• The policy divergence between the Federal Reserve and the BoE would continue if the latter maintained the status quo.
• The UK’s labor market is going through a tough phase as firms are not confident about the overall demand due to higher interest rates and stubborn price pressures.
• UK employers shed jobs for the third time in a row in the three months to August as they are cutting heavily on workforce and inventory to achieve efficiency.
• Data from the UK job search website Adzuna showed that online vacancies and pay offers are falling. The Office for National Statistics (ONS) said its measure of job vacancies fell to a two-year low of 988K in the three months to September.
• Apart from the interest rate decision, investors await BoE guidance on the interest rate outlook. The BoE is expected to keep doors open for further policy tightening as inflation is significantly far from the desired rate of 2%.
• The doubts over UK Prime Minister Rishi Sunak’s promise of halving inflation to 5.4% by year-end are deepening as energy prices have rebounded due to Middle East tensions.
• The market mood remains downbeat as a ground invasion plan by the Israeli army in Gaza would dampen hostage negotiations. 
• Meanwhile, the US Dollar Index (DXY) trades inside the Friday range, around 106.60, as investors shift focus to the Federal Reserve interest rate decision, which is scheduled for November 1.
• Mixed core Personal Consumption Expenditure (PCE) price index data and higher US bond yields are likely to prompt Fed policymakers to keep interest rates unchanged. 
• Fed policymakers are of the view that higher bond yields have already tightened financial conditions, which would allow the central bank to keep interest rates unchanged in the range of 5.25%-5.50% for the second time in a row.
• Apart from the Fed’s monetary policy, investors will focus on the Automatic Data Processing (ADP) Employment Change and ISM Manufacturing PMI data for October.

Technical Analysis: Pound Sterling consolidates above 1.2100

Pound Sterling trades back and forth above the round-level support of 1.2100 as investors await monetary policy decisions by the BoE and the Fed. The broader GBP/USD pair outlook remains bearish as the 50-day and 200-day Exponential Moving Averages (EMAs) are declining. A decisive break below the immediate support of 1.2070 would expose the pair to the psychological support of 1.2000.