Pound Sterling trades with caution as markets await UK inflation data

• The Pound Sterling faces mild selling pressure against its major peers ahead of the UK inflation data to be released on Wednesday.
• UK inflation is expected to have fallen slightly in October.
• Traders trim Fed dovish bets as officials warn of upside inflation risks.

The Pound Sterling (GBP) trades subdued against its major currency peers, except antipodeans, on Tuesday as investors turn cautious ahead of the United Kingdom (UK) Consumer Price Index (CPI) data for October, which will be released on Wednesday.

Investors will pay close attention to the UK inflation data to get cues about whether the Bank of England (BoE) will resume its monetary-easing campaign in the December policy meeting.

The CPI report is expected to show that headline inflation fell to 3.6% year-on-year from 3.8% in September. In the same period, the core CPI - which excludes volatile items such as food, energy, alcohol and tobacco - is expected to have decelerated to 3.4% from the prior reading of 3.5%. On month, headline inflation is seen up 0.4% after remaining flat in September.

Signs of cooling price pressures would prompt bets supporting an interest rate cut by the BoE in the December meeting. On the contrary, sticky figures are unlikely to act as a major drag on BoE dovish speculation due to weak job market conditions and cooling Gross Domestic Product (GDP) growth. Last week, the labour market data for September showed that the Unemployment Rate jumped to 5%.

Later this week, investors will also focus on the UK Retail Sales data for October and the preliminary S&P Global Purchasing Managers' Index (PMI) data for November, which will be released on Friday.

Daily digest market movers: Pound Sterling trades sideways against US Dollar

• The Pound Sterling trades in a tight range around 1.3160 against the US Dollar (USD) during the European trading session on Tuesday. The GBP/USD pair is expected to remain sideways as investors await the United States (US) Nonfarm Payrolls (NFP) data for September, which is scheduled for released on Thursday.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades subduedly around 99.50.
• The impact of the NFP data will be significant as major economic releases in over six weeks have remained halted due to the US government shutdown. Investors will monitor the employment data to get cues about the current labour market trend. August's NFP report demonstrated a sharp slowdown in the hiring trend, which prompted market bets supporting more interest rate cuts by the Federal Reserve (Fed) this year.
• Since the US NFP data for August was released, the Fed has reduced interest rates two times by 50 basis points (bps) cumulatively to 3.75%-4.00%.
• Meanwhile, traders have trimmed Fed dovish expectations as officials have expressed caution about further interest rate cuts, citing upside inflation risks.
• "The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy," Fed Vice Chair Philip Jefferson said at an event in Kansas City on Monday, Reuters reported. He warned that further interest rate cuts would likely "stop putting downward pressure on inflation".

Technical Analysis: Pound Sterling wobbles around 1.3160

The Pound Sterling trades inside Monday's trading range around 1.3160 against the US Dollar at the time of writing. The overall trend of the pair remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3276.

The 14-day Relative Strength Index (RSI) strives to hold above 40.00. A fresh bearish momentum would emerge if the RSI falls back below that level.

Looking down, the April low near 1.2700 will act as a key support zone. On the upside, the October 28 high around 1.3370 will act as a key barrier.