Pound Sterling rebounds against the US Dollar amid hopes for a potential Ukraine peace plan

The Pound Sterling (GBP) recovers against the US Dollar (USD) after a two-day correction, rising toward 1.2610 during European trading on Monday. The GBP/USD pair gains traction as optimism over a potential Russia-Ukraine peace truce reduces the US Dollar’s risk premium. Consequently, the US Dollar Index (DXY), which measures the Greenback against six major currencies, slips to around 107.25 after hitting a two-week high of 107.65 on Friday.

Over the weekend, UK Prime Minister Keir Starmer announced that European leaders had agreed to present a peace proposal to Washington. The meeting, attended by Ukrainian President Volodymyr Zelenskyy, marks a potentially significant step toward ending the three-year-long conflict. Easing geopolitical tensions have weakened the safe-haven demand for the US Dollar.

However, caution remains as investors assess the impact of looming US tariffs. President Donald Trump is set to impose tariffs on Canada, Mexico, and China over their failure to curb fentanyl shipments into the US.

US Commerce Secretary Howard Lutnick confirmed that the planned tariffs on Canada and Mexico will take effect on Tuesday, though he hinted at potential negotiations regarding their extent. Trump has threatened a 25% levy on Canada and Mexico, along with an additional 10% tariff on China, following a similar move earlier in February.

Daily Market Movers: Pound Sterling Gains as BoE’s Ramsden Advocates Cautious Rate Cuts

• At the start of the week, the Pound Sterling trades higher against most major currencies, except the Euro, driven by optimism over a potential Russia-Ukraine peace truce. Additionally, firm expectations that the Bank of England (BoE) will adopt a gradual approach to policy easing and prospects of a favorable US-UK trade deal have supported the British currency.
• On Friday, BoE Deputy Governor Dave Ramsden emphasized the need for a "careful and gradual" approach to monetary policy expansion, citing ongoing labor market uncertainties and global trade risks. Ramsden noted that inflationary pressures remain elevated due to persistent wage growth, stating, "I no longer think that risks to hitting the 2% inflation target sustainably in the medium term are to the downside." Markets have already priced in two interest rate cuts by the BoE this year.
• Meanwhile, last Thursday’s meeting between US President Donald Trump and UK Prime Minister Keir Starmer did not result in a trade deal, but Trump expressed confidence that an agreement could be reached "pretty quickly" without the need for tariffs.
• This week, investors will closely watch key US economic data, particularly the February Nonfarm Payrolls (NFP) report set for release on Friday. The labor market data will be crucial in shaping expectations for the Federal Reserve’s (Fed) monetary policy. According to the CME FedWatch Tool, the Fed is expected to hold interest rates steady in its March and May meetings, with a 77% probability of a rate cut in June.
• In Monday’s session, market participants will focus on the US ISM Manufacturing PMI and revised S&P Global Manufacturing PMI data for February, scheduled for release during North American trading hours. The ISM Manufacturing PMI is expected to edge slightly lower to 50.8, down from 50.9 in January.

Technical Analysis: Pound Sterling Rebounds from 20-Day EMA

The Pound Sterling climbs above 1.2600 against the US Dollar on Monday, finding renewed buying interest following a mean-reversion move to the 20-day Exponential Moving Average (EMA) near 1.2560.

The 14-day Relative Strength Index (RSI) has retreated within the 40.00-60.00 range, signaling a pause in bullish momentum. However, the overall positive bias remains intact.

On the downside, the February 11 low of 1.2333 serves as a key support level for the GBP/USD pair. Meanwhile, resistance is seen at the 50% Fibonacci retracement level of 1.2765, which could act as a barrier to further upside movement.