• Pound Sterling remains on backfoot after UK wage report remains soft.
• BoE Pill kept doors open for further policy-tightening.
• The UK’s consumer inflation report for September is expected to remain soft.

The Pound Sterling (GBP) retreats after soft wage data dampens consumer spending outlook and elevate hopes of continuation of a neutral interest rate decision by the Bank of England (BoE) in its November monetary policy. The GBP/USD pair remains on backfoot as the cascading effects of elevating energy prices could trigger a rebound in inflationary pressures in the United Kingdom economy.

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 in comparison with other G7 economies. Therefore, further softening of consumer inflation would bring some relief for BoE policymakers. Market participants would keep an eye on US President Joe Biden’s visit to Israel about defending themselves against attacks from Palestine.

Daily Digest Market Movers: Pound Sterling falls back after soft wage data

• Pound Sterling drops 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. August reading of 0.3%. The annual data is seen decelerating to 6.5% against former reading of 6.7%.
• Investors seem baffled 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 points, the policy divergence between the Federal Reserve (Fed) and the BoE would square-off.
• On Monday, BoE chief economist, Huw Pill, emphasized on maintaining high interest rates to tame inflation. Pill added that future decisions regarding interest rates would be “finely balanced”, 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 supply chain would disrupt and potential cascading effects of rising oil prices could keep headline inflation persistent.
• The market mood remains cautious amid 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) finds cushion near 106.20 after correcting from weekly high at 106.80 amid cautious market mood.
• 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 faces sell-off near 1.2200

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.