- Pound Sterling strengthens as UK's Rachel Reeves outlines a robust economic agenda focused on growth.
- Investors turn their attention to the Fed's upcoming monetary policy meeting, where rates are expected to stay steady.
- The White House reports that US President Trump is still contemplating tariffs on Canada and Mexico, with a decision expected on February 1.
The Pound Sterling (GBP) strengthened against most major currencies on Wednesday, except for safe-haven assets like the US Dollar (USD) and Japanese Yen (JPY). This gain followed UK Chancellor Rachel Reeves' remarks in Oxfordshire, where she reiterated Prime Minister Keir Starmer's optimistic outlook for the economy, emphasizing that the UK is on the brink of an economic "turnaround." Reeves highlighted plans to remove "stifling and unpredictable" regulations to boost productivity.
On trade relations with the US, Reeves expressed eagerness to collaborate with the new US Treasury Secretary to further strengthen economic ties. She also noted that Prime Minister Starmer had discussed the importance of growth with US President Trump during a recent meeting. In a Bloomberg interview, Starmer pointed out the strong existing trade relations between the two nations, suggesting that there's potential for even better trading opportunities in the future.
On the monetary policy front, traders are expecting a 25 basis point (bps) rate cut from the Bank of England (BoE) at its first meeting of the year on February 6. This expectation follows slower-than-anticipated UK inflation growth, a surprising decline in Retail Sales in December, and slower labor demand linked to Reeves' decision to increase **employers' contributions to National Insurance (NI).
Daily Digest Market Movers: Pound Sterling Weakens Ahead of Fed's Policy Decision
- The Pound Sterling slipped to near 1.2400 against the US Dollar (USD) in Wednesday's North American session, as the US Dollar recovered ahead of the Federal Reserve's (Fed) monetary policy announcement at 19:00 GMT. The US Dollar Index (DXY), tracking the Greenback's value against six major currencies, rebounded to near 108.00.
- Traders expect the Fed to pause its current policy easing cycle, keeping interest rates unchanged in the 4.25%-4.50% range, based on the CME FedWatch Tool. The Fed has reduced its key borrowing rates by 100 basis points (bps) over the past three meetings.
- The Fed's guidance on how long it will maintain current interest rates will play a significant role in determining the US Dollar's direction. Investors will also be focused on the Fed's stance regarding President Donald Trump's tariff plans and their potential impact on inflation and monetary policy.
- White House Press Secretary Karoline Leavitt confirmed that 25% tariffs on Canada and Mexico will take effect on February 1. Leavitt also stated that Trump is still considering 10% tariffs on China starting Saturday.
- Trump also announced plans to impose tariffs on the import of pharmaceuticals, advanced chips, and steel to encourage domestic manufacturing.
Technical Analysis: Pound Sterling Holds Steady Around 1.2400
The Pound Sterling faces challenges in regaining momentum on Wednesday after retreating to near 1.2400 against the US Dollar the previous day. In the near-term, the GBP/USD pair maintains a solid footing, supported by the 20-day Exponential Moving Average (EMA) around 1.2400. However, the 50-day EMA, situated around 1.2510, remains a significant resistance for the bulls.
The 14-day Relative Strength Index (RSI) has risen above 50.00 from the previous range of 20.00-40.00, indicating that bearish momentum has slowed, at least temporarily.
On the downside, key support levels are at the January 13 low of 1.2100 and the October 2023 low of 1.2050. To the upside, the December 30 high of 1.2607 remains a crucial resistance point.
