- The Pound Sterling rebounds sharply against the US Dollar following Donald Trump's warning of additional tariffs on North American economies.
- Investors focus on the upcoming FOMC Minutes on Tuesday and October’s PCE inflation data on Wednesday.
- BoE’s Lombardelli advocates for a gradual approach to policy easing, highlighting potential upside risks to inflation.
The Pound Sterling (GBP) recovered from intraday losses against the US Dollar (USD) during Tuesday’s London session, bouncing back after dipping near the psychological support level of 1.2500 in Asian trading. The GBP/USD pair turned positive as the US Dollar surrendered its early-session gains despite a strong start.
The US Dollar Index (DXY), which measures the Greenback against six major currencies, surged in the Asian session following President-elect Donald Trump’s announcement of steep tariffs. Trump proposed a 25% import tariff on goods from Canada and Mexico, alongside an additional 10% tariff on Chinese imports, accusing China of using Mexico as a conduit for illicit drug exports into the United States.
However, the DXY retraced more than half of its gains as markets recalibrated expectations. Trump’s nomination of Scott Bessent as Treasury Secretary soothed concerns, with Bessent signaling in a Financial Times interview that tariff objectives would be implemented gradually to maintain geopolitical and economic stability.
Investors are now focused on October’s US Personal Consumption Expenditures (PCE) Price Index, set for release on Wednesday. Economists anticipate an acceleration in year-over-year inflation, while monthly headline and core PCE inflation are expected to show steady growth.
This data is crucial for shaping expectations around the Federal Reserve’s December meeting. According to the CME FedWatch tool, there is a 56% probability of a 25-bps rate cut to the 4.25%-4.50% range, while the remaining odds favor rates staying steady.
Additionally, the Federal Open Market Committee (FOMC) Minutes from the November 7 meeting, during which the Fed reduced rates by 25 bps to 4.50%-4.75%, will be released at 19:00 GMT. These minutes could offer insights into the Fed’s future policy direction.
Daily Market Movers: GBP Investors Await BoE Guidance
- The Pound Sterling trades in a narrow range as investors look for clarity on the Bank of England’s (BoE) monetary policy outlook. BoE Governor Andrew Bailey and several policymakers have expressed support for a gradual approach to easing, citing ongoing inflation concerns.
- BoE Deputy Governor Clare Lombardelli reiterated this stance during a speech at King’s Business School, emphasizing the importance of cautious rate cuts. Lombardelli warned that inflation could remain above the BoE’s target, with wage growth stabilizing at 3.5%-4% and CPI lingering near 3%. She downplayed weak November PMI data, stating that a single data point does not provide a definitive signal about the economy’s trajectory.
- Conversely, external policy member Swati Dhingra advocated for a less gradual approach, arguing that UK inflation is not significantly different from other advanced economies and that current policy is dampening investment.
- Market expectations currently lean toward the BoE leaving rates unchanged at 4.75% during the December policy meeting.
Technical Outlook: GBP/USD Struggles Near 1.2550
The GBP/USD pair hovers below a rising trendline near 1.2550, which has been in place since the October 2023 low around 1.2040. The pair’s outlook remains bearish, with the 20- and 50-day Exponential Moving Averages (EMAs) at 1.2735 and 1.2883, respectively, trending downward.
The 14-day Relative Strength Index (RSI) remains within the 20.00-40.00 range, signaling persistent downside momentum.
Key support is seen near May’s low of 1.2446, while resistance stands at the November 20 high around 1.2720. Further weakness could see the pair testing the support zone, while a breakout above resistance would require a shift in sentiment.
