On Tuesday, affected by a light economic data calendar, the pound remained steady. Ahead of the Bank of England's interest rate decision on Thursday, market sentiment turned cautious, with overall stability prevailing. So far this year, supported by several stronger-than-expected economic data releases, the pound has gained about 1.4% against the dollar. The market widely expects the BoE to keep its benchmark interest rate unchanged at 3.75% at Thursday's policy meeting, with one or two rate cuts possible later in the year. Although UK inflation unexpectedly rose to 3.4% in December — exceeding market expectations and making the UK the G7 economy with the highest inflation — the Bank of England forecasts inflation will fall back into the 2% target range around mid-year. Lee Hardman, senior currency analyst at MUFG Bank in Japan, noted that current market views suggest the BoE may delay further rate cuts until its May policy meeting. This postponement of rate-cut expectations is considered one of the key factors supporting pound strength. Before the release of key UK growth, employment, and inflation data in mid-to-late February, there are no major economic data releases scheduled. Recent data have been encouraging, including stronger-than-expected GDP for November, a rebound in December retail sales, and a pickup in January business activity — all providing solid support for the pound's relative strength against the dollar so far this year.

On Tuesday, two Federal Reserve officials offered differing takes on monetary policy while emphasizing the need to bring inflation back to target. Richmond Fed President Tom Barkin said the Fed's rate cuts since autumn 2024 have supported the labor market, but the policy focus remains on working to complete the "last mile" to bring inflation back to target. He pointed out that current inflation is still about 1 percentage point above target and has remained above target since 2021, which deserves close attention because current inflation data significantly influence future expectations. Barkin expects inflation to decline in the coming months and is optimistic about the economy's resilience in 2026, believing that deregulation, tax cuts, and productivity gains will support the economy and curb inflation. Barkin does not have a vote on the FOMC this year, and his remarks align with the Fed's current stance of pausing rate cuts and awaiting more data to confirm inflation trends. On the same day, Fed Governor Stephen Miran defended the view that significant rate cuts should occur this year. He argued that current monetary policy is overly restrictive for the economy and expects "more than a point of interest rate cuts over the course of the year." Miran noted that although inflation remains above target, underlying price pressures are moderate, and reduced regulatory burdens are boosting growth, allowing the Fed to lower rates without reigniting inflation. Miran's governorship ended at the end of January, but he remains in office until his successor is confirmed. These comments come as the Fed undergoes a leadership transition — last Friday, President Trump nominated former Governor Kevin Warsh as Fed chair. Beijing time, Wednesday (February 4th), market focus centers on the 21:15 release of the U.S. January ADP Employment Change and the 23:00 release of the U.S. January ISM Non-Manufacturing PMI.

Based on the 1H chart, GBP/USD has rebounded above the EMA12 and is running along the Bollinger Upper Band, indicating a short-term upward trend. The Bollinger Bands are widening upward, and moving averages are diverging higher, suggesting the market remains in a bullish trend. After the MACD golden cross, downward momentum has gradually weakened, with the MACD and signal lines returning above the zero axis, placing the pair in a short-term bullish zone. RSI stands at 60, reflecting predominantly buying interest among investors. Meanwhile, the 4H chart indicates that the Bollinger Bands are narrowing, moving averages are flattening, and the price is pressured near the middle band. If price can hold above the middle band, it is likely to rise toward the upper band and recent highs near 1.3800 and 1.3870; if it fails to hold, another downward move could occur. RSI is at 53, indicating a wait-and-see market. MACD fast and slow lines hover near the zero line, signaling potential for a trend reversal. Therefore, the tactical approach is sell now and buy later.

Trading Recommendations:

Trading direction: Sell

Entry Price: 1.371

Target Price: 1.3

Stop Loss: 1.4

Support: 1.34/1.3/1.28

Resistance: 1.38/1.4/1.41