- Pound Sterling outperforms major peers as weak UK data pressures gilt yields.
- Analysts forecast a 100 bps rate cut by the BoE this year.
- Risk sentiment improves for risky assets ahead of Trump’s inauguration.
The Pound Sterling (GBP) rebounded against its major peers at the start of the week, supported by increased demand for UK gilts and rising risk appetite ahead of U.S. President-elect Donald Trump’s inauguration.
Weaker-than-expected UK Retail Sales data for December and heightened demand for gilts have pushed 30-year yields lower, falling to near 5.20% from their 26-year high of 5.47% on January 13. Retail sales unexpectedly contracted by 0.3% in December, missing the forecasted 0.4% growth and falling below November’s 0.1% increase. This data has further fueled expectations for a dovish Bank of England (BoE), with Oxford Economics forecasting a 100-bps rate cut to 3.75% by year-end.
UK gilt yields peaked last week following softer-than-expected December Consumer Price Index (CPI) data, increasing speculation that the BoE may cut interest rates at its February 6 policy meeting. While falling gilt yields have weighed on the Pound Sterling, recent weak UK data has amplified dovish bets, adding downward pressure on the currency.
Meanwhile, UK equities have rallied sharply, bolstered by Chancellor Rachel Reeves’ assurance that taxes won’t rise and public spending cuts won’t be necessary to advance her economic agenda. Looking ahead, the next key driver for the Pound Sterling will be Tuesday’s release of UK employment data for the three months ending November.
Daily Digest Market Movers: Pound Sterling Strengthens Against US Dollar Ahead of Trump’s Return
- The Pound Sterling climbs near 1.2200 against the US Dollar (USD) during Monday’s European session as the safe-haven demand for the Greenback weakens ahead of Donald Trump’s swearing-in ceremony. The US Dollar Index (DXY), which measures the Greenback against six major currencies, drops to around 109.00.
- Despite the dip, the broader outlook for the USD remains positive, with expectations that Trump’s pro-growth and inflationary policies will support the US economy. Fox Digital News reports Trump is set to sign over 200 executive orders on his first day back in the White House, likely targeting immigration controls, higher tariffs, and tax cuts.
- This week’s US economic calendar is light, with the main highlight being the S&P Global preliminary Purchasing Managers Index (PMI) data for January, due Friday. Until then, the USD will be guided by market expectations surrounding the Federal Reserve’s monetary policy.
- According to the CME FedWatch tool, traders are pricing in multiple 25 bps interest rate cuts this year, with the first expected at the Fed’s June meeting.
Technical Analysis: Pound Sterling Holds Near 1.2200
The Pound Sterling trades near 1.2200 against the US Dollar on Monday, maintaining a week-long range between 1.2100 and 1.2300. The overall outlook for GBP/USD remains bearish, with the 50-day EMA sloping downward around 1.2538.
The 14-day Relative Strength Index (RSI) stays within the 20.00-40.00 range, signaling strong bearish momentum.
On the downside, key support is near the October 2023 low at 1.2050, while the January 15 high of 1.2306 serves as critical resistance on the upside.
