Pound Sterling Strengthens Against the US Dollar Amid Rising Expectations of BoE’s Continued Hawkish Stance and US Inflation Concerns

Economic

Summary:

The Pound Sterling (GBP) has surged against the US Dollar (USD), trading at a four-month high as market focus shifts toward the Bank of England’s (BoE) interest rate decisions and upcoming US inflation data.

BUY GBPUSD

Close Time

CLOSED

1.29500

Entry Price

1.32000

1.27500

1.33198 -0.00114 -0.09%

41.5

Pips

Profit

1.27500

1.29915

Exit Price

1.29500

Entry Price

1.32000

The Pound Sterling (GBP) has made significant gains against the US Dollar (USD) on Tuesday, pushing to around 1.2900 and briefly touching a four-month high near 1.2930, as traders react to developing economic signals and upcoming data releases. With a volatile global landscape dominated by fears over US President Donald Trump’s tariff-led economic slowdown and shifting monetary policies, the GBP’s recent uptick is tied to growing confidence in the Bank of England (BoE) maintaining a restrictive stance for longer, despite challenges within the domestic and global economies.

The rise in GBP has largely been fueled by expectations that the BoE will continue to hold interest rates at current levels for an extended period, underpinned by strong wage growth and persistent inflationary pressures in the UK. These factors are stoking inflation, particularly in the services sector, prompting traders to believe that the BoE will resist cutting rates in the near term.

BoE Governor Andrew Bailey and other policymakers have been vocal about the need for a "gradual" path for unwinding monetary policy restrictiveness. Bailey emphasized this stance last week during his testimony before the Parliamentary Treasury Committee, highlighting the difficulty in taming inflation that appears unlikely to subside “on its own accord.” This dovish rhetoric from the BoE has sparked market confidence in the Pound as traders believe that, despite global uncertainty, the UK’s monetary policy is unlikely to pivot significantly anytime soon.

However, within the BoE’s decision-making body, a divergence in opinion remains. BoE’s MPC member Catherine Mann has expressed support for a more expansive monetary policy approach, arguing that the UK economy faces substantial volatility, exacerbated by potential "cross-border spillovers" from global financial market fluctuations. Her calls for a more proactive monetary expansion approach contrast with the more cautious tone set by other members of the BoE.

This divergence in approach has left investors on edge, though the general market consensus leans towards the idea of a sustained tight monetary policy in the UK to keep inflationary pressures in check. The UK economy’s recent growth figures support this outlook, albeit with some moderation expected. The UK’s monthly Gross Domestic Product (GDP) data and factory output for January will be released later this week, with the economy projected to grow at a slower pace of 0.1%, down from 0.4% in December. Any surprises in these figures could trigger a shift in market sentiment surrounding the Pound.

Meanwhile, the outlook for the US economy remains clouded by fears over a potential slowdown triggered by tariffs and other trade policies under the Trump administration. As a result, traders have shifted their focus to the upcoming US Consumer Price Index (CPI) data for February, which is expected to reveal a slight deceleration in both headline and core inflation. Year-on-year headline inflation is projected to ease to 2.9% from 3% in January, while the core CPI, which excludes volatile food and energy prices, is seen cooling to 3.2% from 3.3%.

These inflation figures are pivotal for market expectations surrounding the Federal Reserve's next steps. Growing concerns about the economic impact of President Trump’s tariff policies have led to an uptick in bets that the Fed may begin cutting interest rates sooner than expected. According to the CME FedWatch tool, the probability of a Fed rate cut in May has risen sharply to 51%, up from 37% the previous day. Traders are now positioning themselves for a possible shift in the Fed’s monetary stance, driven by fears of a slowdown in the US economy.

Despite these increasing expectations, several Fed officials, including Chairman Jerome Powell, have cautioned against hasty action. Powell, in particular, has stressed the "wait and see" approach, noting the heightened uncertainty surrounding the Trump administration’s fiscal and regulatory policies. In a recent speech, Powell remarked, “Uncertainty around Trump administration policies and their economic effects remains high, and the net effect of trade, immigration, fiscal, and regulation policy is what matters for the economy and the monetary policy.”

This cautious tone from the Fed has tempered some of the enthusiasm for a near-term rate cut, although the uncertainty surrounding US trade policy continues to weigh on investor sentiment. On Tuesday, attention will turn to the release of the US Job Openings and Labor Turnover Survey (JOLTS) data for January, expected to show 7.75 million job openings, slightly higher than the 7.6 million reported for December. The JOLTS report will offer additional insight into the strength of the US labor market, a critical factor in shaping the Fed’s rate decisions.

Technical Analysis

From a technical standpoint, the GBP/USD currency pair is showing positive momentum, with the price approaching the 1.2925 level. A sustained break above this resistance point could signal further bullish movement, with a target of 1.3000 and potentially extending to 1.3130 in the coming sessions. The GBP's resilience against the USD comes amid growing concerns about US economic growth, with market players positioning themselves for a prolonged period of policy divergence between the Bank of England and the Federal Reserve.

TRADE RECOMMENDATION

BUY GBPUSD

ENTRY PRICE: 1.2950

STOP LOSS: 1.2750

TAKE PROFIT: 1.3200

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Pound Sterling Strengthens Against the US Dollar Amid Rising Expectations of BoE’s Continued Hawkish Stance and US Inflation Concerns

Technical Analysis

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