GBP/USD strengthens ahead of Fed decision
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The Pound Sterling (GBP/USD) trades near 1.2450, gaining ground against the US Dollar as investors adjust positions ahead of the Federal Reserve’s monetary policy announcement. The US Dollar Index (DXY) declines to 107.75, reflecting reduced risk-off sentiment as fears surrounding China’s DeepSeek AI model subside. Traders are also closely watching tariff developments from the Trump administration and the economic outlook in the UK.
Fed Decision in Focus: Rate Hold Expected
Market participants widely expect the Federal Reserve to keep interest rates steady in the 4.25%-4.50% range after three consecutive rate cuts totaling 100 basis points. The Fed’s guidance will be crucial in shaping expectations for future policy moves. Any signals of prolonged rate stability or dovish comments from Chair Jerome Powell could impact USD positioning.
Investors are also considering potential inflationary pressures stemming from Trump’s proposed tariffs on Canada, Mexico, and China. The White House has confirmed that 25% tariffs on Canadian and Mexican imports will proceed on February 1, while a 10% tariff on Chinese imports remains under consideration. Additionally, Trump has hinted at tariffs targeting pharmaceuticals, semiconductors, and steel to support domestic production.
UK Economic Outlook: Starmer’s Optimism and BoE Rate Cut Expectations
UK Prime Minister Keir Starmer’s comments on strengthening US-UK trade relations provided a modest boost to GBP sentiment. Starmer emphasized the strong foundation for expanded trade agreements while also highlighting a potential economic turnaround for the UK.
Investors will be monitoring UK Chancellor Rachel Reeves’ speech in Oxfordshire, where she is expected to outline new growth initiatives, including the Oxford-Cambridge Growth Corridor. Government reports estimate that the initiative could add up to £78 billion to the UK economy by 2035.
On the monetary policy front, markets anticipate that the Bank of England (BoE) will lower interest rates by 25 basis points to 4.50% at its February 6 meeting. The case for easing has strengthened following weaker-than-expected inflation data, a surprise decline in retail sales, and dampened labor market conditions.
Technical Analysis: GBP/USD Stabilizes Above 1.2400
The GBP/USD pair holds firm above the 20-day Exponential Moving Average (EMA) at 1.2400, signaling near-term support. However, the 50-day EMA at 1.2510 remains a key resistance level, limiting upside momentum.
The 14-day Relative Strength Index (RSI) has recovered above 50.00, indicating that bearish momentum has diminished. A decisive break above 1.2510 could trigger a test of the December 30 high at 1.2607, while support remains at the January 13 low of 1.2100 and the October 2023 low of 1.2050.
With both US and UK monetary policy developments in focus, GBP/USD traders will be closely watching the Fed’s rate decision and Powell’s commentary for directional cues in the upcoming sessions.
Fed Decision in Focus: Rate Hold Expected
Market participants widely expect the Federal Reserve to keep interest rates steady in the 4.25%-4.50% range after three consecutive rate cuts totaling 100 basis points. The Fed’s guidance will be crucial in shaping expectations for future policy moves. Any signals of prolonged rate stability or dovish comments from Chair Jerome Powell could impact USD positioning.
Investors are also considering potential inflationary pressures stemming from Trump’s proposed tariffs on Canada, Mexico, and China. The White House has confirmed that 25% tariffs on Canadian and Mexican imports will proceed on February 1, while a 10% tariff on Chinese imports remains under consideration. Additionally, Trump has hinted at tariffs targeting pharmaceuticals, semiconductors, and steel to support domestic production.
UK Economic Outlook: Starmer’s Optimism and BoE Rate Cut Expectations
UK Prime Minister Keir Starmer’s comments on strengthening US-UK trade relations provided a modest boost to GBP sentiment. Starmer emphasized the strong foundation for expanded trade agreements while also highlighting a potential economic turnaround for the UK.
Investors will be monitoring UK Chancellor Rachel Reeves’ speech in Oxfordshire, where she is expected to outline new growth initiatives, including the Oxford-Cambridge Growth Corridor. Government reports estimate that the initiative could add up to £78 billion to the UK economy by 2035.
On the monetary policy front, markets anticipate that the Bank of England (BoE) will lower interest rates by 25 basis points to 4.50% at its February 6 meeting. The case for easing has strengthened following weaker-than-expected inflation data, a surprise decline in retail sales, and dampened labor market conditions.
Technical Analysis: GBP/USD Stabilizes Above 1.2400
The GBP/USD pair holds firm above the 20-day Exponential Moving Average (EMA) at 1.2400, signaling near-term support. However, the 50-day EMA at 1.2510 remains a key resistance level, limiting upside momentum.
The 14-day Relative Strength Index (RSI) has recovered above 50.00, indicating that bearish momentum has diminished. A decisive break above 1.2510 could trigger a test of the December 30 high at 1.2607, while support remains at the January 13 low of 1.2100 and the October 2023 low of 1.2050.
With both US and UK monetary policy developments in focus, GBP/USD traders will be closely watching the Fed’s rate decision and Powell’s commentary for directional cues in the upcoming sessions.