Pound Sterling remains cautious as the BoE signals a gradual approach to interest rate cuts

The Pound Sterling (GBP) remains steady against its peers on Thursday, despite Bank of England (BoE) officials reinforcing a “gradual and cautious” approach to policy easing during testimony before Parliament’s treasury department on Wednesday.

BoE Monetary Policy Committee (MPC) member Megan Greene emphasized the need for a measured reduction in monetary policy restrictiveness, citing persistent inflation concerns. BoE Chief Economist Huw Pill echoed this sentiment, stating that further efforts are required to fully curb underlying inflation.

Meanwhile, BoE Governor Andrew Bailey highlighted the broader economic impact of US President Donald Trump’s trade policies. He also warned that the recent increase in employer contributions to National Insurance (NI), announced by Chancellor Rachel Reeves in the Autumn Budget, could push inflation up by 0.1%-0.2% due to rising labor costs.

Market expectations reflect confidence in further BoE rate cuts, with traders fully pricing in two additional 25 basis points (bps) reductions this year. The central bank had already lowered its key borrowing rate by 25 bps to 4.5% in February.

Market Movers: GBP/USD Holds Firm as US Tariff Concerns Ease

• The Pound Sterling holds steady near 1.2900 against the US Dollar (USD) during European trading hours on Thursday, as the risk premium on the USD declines. Investors now perceive President Trump’s tariff measures as less severe than initially feared.
• Market sentiment suggests that Trump’s tariff strategy is more of a negotiation tactic rather than an aggressive trade policy shift. On Wednesday, White House Press Secretary Karoline Leavitt confirmed that Trump would grant a one-month exemption on the newly imposed 25% tariffs on automobiles imported from Canada and Mexico.
• Leavitt further stated that the administration is open to considering additional tariff exemptions. US Agriculture Secretary Brooke Rollins also indicated that certain agricultural products could receive exemptions.
• Looking ahead, the USD’s trajectory will be influenced by the US Nonfarm Payrolls (NFP) report for February, set for release on Friday. The data will provide insights into the Federal Reserve’s (Fed) policy outlook. Analysts forecast job additions of 160K, up from 143K in January. However, the ADP Employment report on Wednesday showed a weaker-than-expected private sector job gain of 77K, far below the anticipated 140K and January’s 186K figure.

Technical Analysis: GBP/USD Maintains Strength Above Key Fibonacci Level

The Pound Sterling extends gains toward the 61.8% Fibonacci retracement level, drawn from the late September high to the mid-January low, reaching 1.2930 on Thursday. The pair’s long-term trend has turned bullish, with GBP/USD trading above the 200-day Exponential Moving Average (EMA) at 1.2680.

The 14-day Relative Strength Index (RSI) has climbed above 60.00, indicating strong bullish momentum.

Key support levels are positioned at the 50% Fibonacci retracement of 1.2767 and the 38.2% level at 1.2608. On the upside, the 1.3000 psychological mark remains a crucial resistance level for further gains.