Pound Sterling lacks direction as investors await inflation data

• Pound Sterling is broadly demonstrating a lackluster performance below 1.3100.
• United Kingdom’s inflation is expected to soften as producers have cut prices at factory gates.
• The Bank of England might continue raising interest rates as the 2% target remains far.

The Pound Sterling (GBP) drops as the upside seems restricted amid caution among market participants ahead of the United Kingdom’s inflation data. The GBP/USD pair struggles in finding a key trigger and has been oscillating near 1.3100. The current volatility squeeze is expected to be followed by an explosion once inflation data is published on Wednesday. UK producer prices have recently eased, as did household demand for big-ticket items, but inflation for consumers has proven to be more persistent than initially expected. 

The consequences of the United Kingdom's higher inflation have been widening their scope and the impact of the drop in sales of big-ticket items and the housing sector is expanding to labor market conditions. Wages might fail in maintaining their steady pace and the employment generation process is likely to slow as firms are postponing their expansion plans to avoid higher interest-payment obligations.

Daily Digest Market Movers: Pound Sterling remains in bounded territory

• Pound Sterling has faced stiff resistance around 1.3100 as the upcoming United Kingdom inflation data hogs the limelight.
• Market expectations show that June’s monthly inflation grew at a pace of 0.4%, lower than the  0.7% increase seen in May. Annual headline inflation is expected to decelerate to 8.2% from 8.7% a month earlier.
• The core Consumer Price Index, which strips out the more-volatile categories of food and energy, has been a troublemaker for Bank of England policymakers due to its stubbornness. The measure is expected to remain steady at fresh highs of 7.1%.
• Inflation in the British economy has been fueled by labor shortages and 45-year-high food inflation.
• Food inflation is expected to soften as producers have cut prices for the first time in more than three years after cost pressures have started to relent, according to a survey from Lloyds Bank reported by The Times.
• Apart from consumer prices, investors will focus on Producer Price Index (PPI) figures. Investors should note that UK Finance Minister Jeremy Hunt was in discussions with industry regulators to stop overcharging prices.
• Producer prices are expected to remain extremely soft, according to market expectations, adding to evidence of easing price pressures in the pipeline.
• In spite of the deceleration in factory prices, the Bank of England (BoE) Governor Andrew Bailey said the bank will continue hiking interest rates by a wide margin.
• UK inflation has remained extremely persistent, increasing the chances of further policy tightening by the BoE and heavily weighing on economic prospects.
• A quarterly survey compiled by Deloitte showed that top executives in UK firms expect a slowdown in fresh employment and wage hikes.
• Cooling labor market conditions would be welcomed by BoE policymakers as consumer inflation expectations would likely ease. Still, the economic outlook would also worsen.
• The overall market mood is quite upbeat amid a decent appeal for risk-perceived assets.
• The US Dollar Index (DXY) edged down while attempting to sustain an auction above the psychological resistance of 100.00.
• Investors are anticipating a volatile action in the US Dollar ahead of the release of the United States Retail Sales data for June, which will be published at 12:30 GMT.
• While higher interest rates by the Federal Reserve (Fed) have propelled fears of bleak economic prospects, US Treasury Secretary Janet Yellen said on Monday that the economy is making good progress in bringing inflation down and she doesn’t expect a recession, Bloomberg reports.

Technical Analysis: Pound Sterling demonstrates volatile squeeze around 1.3100

Pound Sterling is still testing its strength in the breakout of the Rising Channel pattern formed on the daily chart by a marginal correction. A breakout of this pattern indicates immense strength in the upside momentum. Upward-sloping short-to-long-term daily Exponential Moving Averages (EMAs) also indicate firmness for Pound Sterling bulls.

Momentum oscillators are in the bullish trajectory, showing no signs of divergence or any evidence of an oversold situation.