- Pound Sterling weakens against major peers as traders anticipate a 25 bps rate cut by the Bank of England (BoE) on Thursday.
- Market volatility is expected to remain high amid uncertainty over US-China trade relations.
- The US Dollar's movement will be influenced by US ADP Employment Change and ISM Services PMI data for January, due Wednesday.
The Pound Sterling (GBP) rises to near 1.2500 against the US Dollar in Wednesday's European session. The GBP/USD pair strengthens as the US Dollar gives up its earlier gains, losing risk premium after US President Donald Trump postponed tariffs on Canada and Mexico. Investors see this as a negotiation tactic by Trump to secure better deals with key trading partners after they agreed to cooperate on criminal enforcement.
However, market sentiment remains cautious amid the brewing US-China trade tensions. On Tuesday, China retaliated to Trump's 10% tariffs by imposing levies on US exports, including farm equipment, autos, and energy items like Coal and Liquefied Natural Gas (LNG).
US Dollar movement will be influenced by the US ADP Employment Change and ISM Services PMI data for January, due later in the day. Economists estimate 150K private sector jobs were added in January, up from 122K in December. The ISM Services PMI is expected to increase to 54.3, from 54.1 previously, reflecting positive momentum in the US services sector.
The data will impact expectations for how long the Federal Reserve (Fed) will keep interest rates steady this year.
Pound Sterling Declines as BoE Rate Cut Expected
- The Pound Sterling underperforms against most major peers on Wednesday, ahead of the Bank of England (BoE) monetary policy decision on Thursday.
- The BoE is widely expected to cut interest rates by 25 basis points to 4.50%, marking its third rate cut in the current policy-easing cycle. However, MPC member Catherine Mann, known for her hawkish stance, is likely to vote to keep rates steady at 4.75%.
- Market participants are confident that inflation in the UK decelerated in December, with services sector inflation easing to 4.4% from 5% in November. Additionally, a sharp drop in retail sales has reinforced expectations of a rate cut.
- Beyond Thursday's meeting, traders anticipate 56 basis points of further rate cuts from the BoE this year.
Technical Outlook: Pound Sterling Nears 1.2500
The Pound Sterling (GBP) extends its winning streak for a third consecutive day against the US Dollar (USD) on Wednesday, advancing toward the 50-day Exponential Moving Average (EMA) near 1.2500.
The 14-day Relative Strength Index (RSI) remains within the 40.00-60.00 range, indicating a sideways trend.
To the downside, key support levels are found at the January 13 low of 1.2100 and the October 2023 low of 1.2050. On the upside, the December 30 high of 1.2607 remains a significant resistance level.
