Pound Sterling rebounds as market sentiment improves

• Pound Sterling attempts a  recovery even soft labor data.
• BoE's Pill kept doors open for further policy tightening.
• The UK’s Consumer Price Index data is expected to point to softening inflation pressures.

The Pound Sterling (GBP) rebounded as investors digested the soft wage data, which dampened the outlook for consumer spending and increased the chances of another pause by the Bank of England (BoE) at its November monetary policy meeting. The GBP/USD pair remains on the back foot after stronger-than-expected US Retail Sales data added to evidence of strength in the US economy, lifting the US Dollar (USD) and weighing on the pair.

BoE policymaker Swati Dhingra commented after the release of the soft wage report that the labor market is loosening and she doesn't see further wage growth momentum. Last week, Dhingra said that the central bank could look for rate cuts if the growth rate remains below expectations.

After labor earnings data, investors will focus on the inflation data for September, which will set the undertone of the BoE policy. Inflation in the UK economy is highest among G7 economies. Therefore, further softening of consumer inflation would bring some relief for BoE policymakers. Market participants will also keep an eye on US President Joe Biden’s visit to Israel amid escalating tensions in the region.

Daily Digest Market Movers: Pound Sterling rebounds US Dollar retreats

• Pound Sterling finds support near 1.2150 after failing to climb above the round-level resistance of 1.2200 as the United Kingdom wage data remains softer than anticipated.
• Three month-to-August Average Earnings excluding bonuses softened to 7.8% as expected from the former release of 7.9%. In the same period, the Average Earnings data including bonuses decelerated to 8.1% from the consensus of 8.3% and the prior release of 8.5%.
• Soft wage data would dampen the overall consumer spending.
• The UK’s Office for National Statistics (ONS) reported that the publication of employment numbers was postponed by a week to October 24 due to a delay in covering more respondents by the LFS survey.
• The ONS reported that the delay would "give us additional time to produce the best possible estimates of the labor market using the best available data sources," as reported by Reuters.
• After wage data, investors will shift their focus on the inflation data for September, which will set the undertone for November monetary policy.
• As per the consensus, the core Consumer Price Index (CPI) data is seen softening to 6.0% from 6.2% recorded in August. Monthly headline CPI expanded at a higher pace of 0.4% vs. the August reading of 0.3%. The annual data is seen decelerating to 6.5% against the former reading of 6.7%.
• Investors seem baffled as to whether the central bank will focus on supporting the economic prospects or return back to the agenda of bringing down inflation to 2%.
• A slowdown in progress in inflation returning to 2% could prompt BoE policymakers to look for raising interest rates further by 25 basis points (bps) to 5.50%.
• If the BoE manages to raise interest rates by a quarter-to-a-basis point, the policy divergence between the Federal Reserve (Fed) and the BoE would square off.
• On Monday, BoE chief economist, Huw Pill, emphasized maintaining high interest rates to tame inflation. Pill added that future decisions regarding interest rates would be "finely balanced", and kept doors open for further policy tightening.
• The interest rate decision by the BoE for November monetary policy is expected to be impacted by the Israel-Palestine war as the supply chain would be disrupted and the potential cascading effects of rising oil prices could keep headline inflation persistent.
• The market mood remains cautious amid the deepening Israel-Hamas war as the former is set to carry out ground assault in Gaza. This could result in an intervention of more Middle-East players, which could elevate conflicts.
• US Secretary of State Anthony Blinken said on Monday that President Joe Biden will visit to Israel to meet Prime Minister Benjamin Netanyahu on Wednesday.
• The US Dollar Index (DXY) recovers quickly to near 106.50 after the US Census Bureau reported upbeat Retail Sales data for September. Consumer spending grew by 0.7% vs. expectations of 0.3%. A strong labor market is driving the retail demand and robust consumer spending indicates that the third quarter has ended on a healthy note.
• The Retail Sales data excluding automobiles also outperformed expectations and grew by 0.6% against expectations of 0.2%. While credit card delinquencies have rose to an almost 11-year high.
• Meanwhile, investors await the speech from Fed Chair Jerome Powell, which is scheduled for Oct 19 before the Economic Club of New York. Investors would watch for November’s monetary policy framework and the outlook on inflation and the economy.

Technical Analysis: Pound Sterling finds interim support near 1.2150

Pound Sterling faces selling pressure near 1.2200 after soft wage data. The GBP/USD pair trades inside Monday’s trading range as investors await the UK inflation data. The short-term and broader outlook of the GBP/USD pair is bearish as it is trading below the 20-day Exponential Moving Average (EMA) and the 50 and 200-day EMAs have already delivered a death cross. The Cable could decline towards the psychological support of 1.2000.