POUND STERLING WEAKENS ON UK’S SOFT INFLATION, RISK-OFF SENTIMENT

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  • The Pound Sterling is expected to remain under pressure on lower-than-anticipated UK CPI data for February.
  • Soft UK inflation reinforces market expectations for the BoE to begin reducing interest rates in August.
  • The next move in the US Dollar will be guided by the Fed’s monetary policy meeting.

The Pound Sterling (GBP) turns volatile in Wednesday’s London session as the United Kingdom Office for National Statistics (ONS) reported softer-than-expected Consumer Price Index (CPI) data for February. Annual headline and core inflation decelerated to 3.4% and 4.5%, respectively. Lower inflation is expected to allow Bank of England (BoE) policymakers to consider cutting interest rates early than what market participants had anticipated.

Investors should brace for high volatility for the Pound Sterling as the BoE is set to announce its second monetary policy decision of 2024 on Thursday. Investors are expecting the BoE to hold interest rates steady at 5.25%, but soft inflation data might allow policymakers to deliver a slight dovish guidance on interest rates. 

Meanwhile, investors remain risk-averse ahead of the Federal Reserve’s (Fed) policy meeting, which will be announced at 18:00 GMT. Investors will keenly focus on the quarterly updated dot plot and economic projections as the Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50%. The dot plot shows interest rate projections from Fed officials for various time frames.


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