- The Pound Sterling climbs toward 1.2900 against the US Dollar ahead of the February US inflation report.
- Market expectations for Fed rate cuts have increased amid concerns over a Trump tariff-driven US economic slowdown.
- Bank of England officials advocate for a "gradual and cautious" approach to interest rate cuts.
The Pound Sterling (GBP) remains strong against the US Dollar (USD), trading near a four-month high around 1.2930 during European trading hours on Tuesday. The GBP/USD pair holds its ground as the US Dollar Index (DXY), which measures the Greenback’s performance against six major currencies, continues to decline, hovering near 103.30. Investors are closely watching the upcoming United States (US) Consumer Price Index (CPI) data for February, set to be released on Wednesday.
The US inflation report is expected to play a crucial role in shaping market expectations regarding the Federal Reserve’s (Fed) monetary policy direction. Analysts anticipate a year-on-year increase in headline inflation of 2.9%, down from 3% in January. Meanwhile, the core CPI, which excludes volatile food and energy prices, is projected to ease to 3.2% from the previous 3.3%.
Traders have increasingly speculated that the Fed may begin cutting interest rates in May, driven by concerns over a potential economic slowdown triggered by US President Donald Trump’s tariff policies. According to the CME FedWatch tool, the probability of a rate cut in May has risen to 51%, up from 37% just a day earlier.
Despite these expectations, several Fed officials, including Chair Jerome Powell, have maintained a cautious stance, emphasizing a "wait and see" approach. Powell recently stated, “Uncertainty around Trump administration policies and their economic effects remains high, and the net effect of trade, immigration, fiscal, and regulation policy is what matters for the economy and the monetary policy.”
In addition to inflation data, investors are also keeping an eye on the US JOLTS Job Openings report for January, set to be released at 14:00 GMT on Tuesday. Economists forecast that US employers likely posted 7.75 million new job openings, slightly up from December’s 7.6 million.
Daily Digest Market Movers: Pound Sterling Outperforms Its Peers
- The Pound Sterling (GBP) trades higher against most major currencies on Tuesday, with the exception of the Euro (EUR), as traders grow increasingly confident that the Bank of England (BoE) will maintain its current interest rates for an extended period. Expectations for a prolonged restrictive monetary policy stance are reinforced by strong wage growth in the United Kingdom (UK), which continues to drive inflation in the services sector.
- Four BoE policymakers, including Governor Andrew Bailey, emphasized a cautious approach during their testimony before the Parliamentary Treasury Committee. They signaled that the process of "unwinding monetary policy restrictiveness" would be gradual, as inflation persistence is unlikely to fade without further intervention.
- BoE Monetary Policy Committee (MPC) member Catherine Mann has taken a contrasting stance, advocating for a more aggressive monetary expansion. She has cited "substantial volatility" in financial markets, particularly from "cross-border spillovers," as a reason to move towards easing policy sooner rather than later.
- Investors will focus on the UK’s monthly Gross Domestic Product (GDP) and factory output data for January, set to be released on Friday. The UK economy is expected to have expanded at a modest pace of 0.1%, slowing from the 0.4% growth recorded in December.
Technical Analysis: Pound Sterling Aims to Stabilize Above 1.2930
The Pound Sterling (GBP) is gaining momentum, attempting to establish stability above the 61.8% Fibonacci retracement level, drawn from the late September high to the mid-January low, around 1.2930. The long-term outlook for the GBP/USD pair remains bullish, as the pair continues to trade above the 200-day Exponential Moving Average (EMA), currently positioned near 1.2692.
The 14-day Relative Strength Index (RSI) remains above 60.00, indicating strong bullish momentum.
On the downside, key support levels include the 50% Fibonacci retracement at 1.2767 and the 38.2% retracement at 1.2608. Conversely, the psychological resistance level at 1.3000 will be a crucial barrier for GBP bulls.
