Pound stalls as BoE rate cut looms, fueled by mounting uncertainty
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Cautious sentiment surrounds Pound Sterling
The Pound Sterling (GBP) trades in a narrow range against its major counterparts on Thursday, reflecting growing investor concern over the United Kingdom’s (UK) economic outlook. Elevated public borrowing costs and a swelling budget deficit have fueled fears of potential tax hikes or spending cuts, further dampening the UK’s moderate growth trajectory.
Rate cut expectations weigh on GBP
Markets have almost fully priced in a 25-basis-point rate cut by the Bank of England (BoE) at its February 6 meeting, which would lower the borrowing rate to 4.5%. This dovish outlook is supported by soft inflation, declining retail sales in December, and weaker labor demand during the three months ending in November. These factors have contributed to subdued sentiment around the Pound as investors await clearer policy signals.
Impact of Trump’s tariff plans
Investor caution extends beyond the UK as markets seek clarity on US President Donald Trump’s proposed tariff plans. Trump has floated a 25% tariff on imports from Mexico and Canada and a 10% levy on Chinese goods, set to take effect in early February. However, his comments on potential tariffs targeting Europe remain vague, leaving traders in a holding pattern as they assess the potential ripple effects on global trade and growth.
Market drivers: focus on economic data and central banks
The flash UK S&P Global/CIPS Purchasing Managers Index (PMI) for January, due Friday, is expected to reveal a slowdown in business activity, further influencing the outlook for the Pound. Across the Atlantic, the Federal Reserve’s rate decision next Wednesday is unlikely to inject volatility into the US Dollar, as the central bank is widely expected to hold rates steady. However, markets will closely monitor the Fed’s forward guidance for hints on future policy shifts.
Technical outlook: GBP/USD tests key resistance levels
From a technical perspective, the GBP/USD pair is attempting to break above the 20-day Exponential Moving Average (EMA), which hovers near 1.2356. The pair recently rebounded after hitting a one-year low of 1.2100 on January 13, signaling a potential pause in bearish momentum.
The Relative Strength Index (RSI) has risen to 43.50, suggesting a slowdown in bearish pressure. On the downside, support is seen near the October 2023 low of 1.2050. Conversely, key resistance lies at the 20-day EMA and the psychological barrier of 1.2400, which could determine the pair’s next directional move.
Conclusion: limited upside amid policy uncertainty
As markets navigate a mix of economic and geopolitical uncertainties, the Pound Sterling remains vulnerable to downside risks. The BoE’s impending rate decision and Trump’s tariff announcements are likely to play a pivotal role in shaping near-term price action. For now, GBP/USD appears poised to trade within a defined range, with key data releases and policy developments offering potential catalysts for a breakout.
The Pound Sterling (GBP) trades in a narrow range against its major counterparts on Thursday, reflecting growing investor concern over the United Kingdom’s (UK) economic outlook. Elevated public borrowing costs and a swelling budget deficit have fueled fears of potential tax hikes or spending cuts, further dampening the UK’s moderate growth trajectory.
Rate cut expectations weigh on GBP
Markets have almost fully priced in a 25-basis-point rate cut by the Bank of England (BoE) at its February 6 meeting, which would lower the borrowing rate to 4.5%. This dovish outlook is supported by soft inflation, declining retail sales in December, and weaker labor demand during the three months ending in November. These factors have contributed to subdued sentiment around the Pound as investors await clearer policy signals.
Impact of Trump’s tariff plans
Investor caution extends beyond the UK as markets seek clarity on US President Donald Trump’s proposed tariff plans. Trump has floated a 25% tariff on imports from Mexico and Canada and a 10% levy on Chinese goods, set to take effect in early February. However, his comments on potential tariffs targeting Europe remain vague, leaving traders in a holding pattern as they assess the potential ripple effects on global trade and growth.
Market drivers: focus on economic data and central banks
The flash UK S&P Global/CIPS Purchasing Managers Index (PMI) for January, due Friday, is expected to reveal a slowdown in business activity, further influencing the outlook for the Pound. Across the Atlantic, the Federal Reserve’s rate decision next Wednesday is unlikely to inject volatility into the US Dollar, as the central bank is widely expected to hold rates steady. However, markets will closely monitor the Fed’s forward guidance for hints on future policy shifts.
Technical outlook: GBP/USD tests key resistance levels
From a technical perspective, the GBP/USD pair is attempting to break above the 20-day Exponential Moving Average (EMA), which hovers near 1.2356. The pair recently rebounded after hitting a one-year low of 1.2100 on January 13, signaling a potential pause in bearish momentum.
The Relative Strength Index (RSI) has risen to 43.50, suggesting a slowdown in bearish pressure. On the downside, support is seen near the October 2023 low of 1.2050. Conversely, key resistance lies at the 20-day EMA and the psychological barrier of 1.2400, which could determine the pair’s next directional move.
Conclusion: limited upside amid policy uncertainty
As markets navigate a mix of economic and geopolitical uncertainties, the Pound Sterling remains vulnerable to downside risks. The BoE’s impending rate decision and Trump’s tariff announcements are likely to play a pivotal role in shaping near-term price action. For now, GBP/USD appears poised to trade within a defined range, with key data releases and policy developments offering potential catalysts for a breakout.