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Pound Sterling drops as market mood turns downbeat

The Pound Sterling (GBP) drops vertically amid dismal market sentiment in Monday’s European session. The GBP/USD pair is expected to remain volatile as investors await the United Kingdom employment and the United States Consumer Price Index (CPI) data on Tuesday. UK Average Earnings will be in focus as Bank of England (BoE) Deputy Governor Sarah Breeden said last week that the longevity of higher interest rates will be based on how price pressures and wage growth data evolve. If wage growth momentum remains strong, the BoE will need to keep interest rates elevated to combat inflation, which will actually be positive for Pound Sterling as higher interest rates attract more foreign capital inflows.

In today’s session, a speech from Bank of England Governor Andrew Bailey will be keenly watched, and could set a fresh tone for March’s monetary policy meeting. In the last monetary policy statement, Bailey pushed back on rate-cut expectations amid low confidence that inflation will soon return to its 2% target. Pound Sterling trades in a range of 1.2580-1.2640 from the past three trading sessions. The GBP/USD pair demonstrates a sharp volatility contraction ahead of the crucial economic events. The 50-day Exponential Moving Average (EMA) around 1.2630 is acting as a barricade for the Pound Sterling bulls. The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a probable consolidation ahead.