Pound Sterling edges higher ahead of BoE Governor Bailey's speech

The Pound Sterling (GBP) rebounds against its major counterparts during European trading hours on Tuesday, ahead of Bank of England (BoE) Governor Andrew Bailey’s speech at the University of Chicago Booth School of Business in London at 12:15 GMT. Investors will closely monitor Bailey's remarks for insights into future interest rate policy.

Last week, the BoE lowered its key borrowing rate by 25 basis points (bps) to 4.5%, in line with expectations, with a unanimous 9-0 vote favoring the cut. Seven members of the Monetary Policy Committee (MPC) supported the 25 bps reduction, while surprisingly, Catherine Mann joined Swati Dhingra in advocating for a more aggressive rate cut. Governor Bailey signaled a “gradual and cautious” approach to future rate adjustments.

Earlier on Tuesday, MPC member Catherine Mann struck a dovish tone in an interview with the Financial Times (FT). Investors had been eager to understand her reasoning for supporting a larger rate cut after previously maintaining a hawkish stance for an extended period.

Mann explained that her shift in position was driven by weakening demand conditions, stating that “demand conditions are quite a bit weaker than has been the case.” She viewed her call for a 50 bps rate cut as a means of signaling to traders the appropriate financial conditions for the UK economy.

On inflation and labor market prospects, Mann expressed confidence that inflation would align with the BoE’s 2% target later this year. However, she anticipated a “non-linear” decline in employment levels.

Daily Market Movers: Pound Sterling Rebounds Against USD Ahead of Fed Powell's Testimony

The Pound Sterling (GBP) recovers against the US Dollar (USD), trading around 1.2350 in Tuesday’s European session. The GBP/USD pair rebounds as the US Dollar remains subdued, though its overall outlook remains firm due to concerns that the recently imposed 25% tariffs on steel and aluminum imports into the United States (US) could fuel inflation.
On Monday, US President Donald Trump signed executive orders imposing 25% tariffs on all steel and aluminum imports, confirming that no country would be exempt. These tariffs, set to take effect on March 4, will be followed by additional reciprocal tariff announcements in the coming days.
Market participants worry that US importers will face higher metal prices, potentially leading to inflationary pressures as businesses pass increased costs to consumers. This scenario could prompt Federal Reserve (Fed) officials to delay any policy easing, which has been on hold since January.
Investors will closely watch Fed Chair Jerome Powell’s testimony before Congress at 15:00 GMT for insights into the central bank’s interest rate outlook. Powell is also scheduled to testify again on Wednesday.
During the January policy meeting, Powell stated that monetary policy adjustments would only be considered once the Fed observes “real progress in inflation or at least some weakness in the labor market.”
Additionally, investors will monitor the US Consumer Price Index (CPI) data for January, set for release on Wednesday, for further inflationary signals.

Technical Analysis: Pound Sterling Below 50-Day EMA

The Pound Sterling extends its losing streak against the US Dollar for the fourth consecutive trading session, hitting a fresh weekly low near 1.2350 on Tuesday. The GBP/USD pair resumed its downward trajectory after briefly recovering toward the 50-day Exponential Moving Average (EMA) around 1.2484.

The 14-day Relative Strength Index (RSI) remains within the 40.00-60.00 range, indicating a sideways trend.

Key support levels to watch are the January 13 low of 1.2100 and the October 2023 low of 1.2050. On the upside, the December 30 high of 1.2607 serves as a crucial resistance level.