The GBP/USD pair snapped a two-day losing streak, staging a recovery and hovering near the 1.2600 level during the early European session on Monday. The primary catalyst driving this upward movement is the weakening of the US Dollar (USD) against its major counterparts.
The dovish sentiment surrounding the Federal Reserve’s stance on interest rates is exerting downward pressure on the US Dollar. Market sentiment increasingly leans towards expectations of the Fed implementing interest rate cuts, potentially commencing as early as June.
Reflecting this sentiment, the US Dollar Index (DXY) retreated to near 104.30, despite the 2-year and 10-year yields on US Treasury bonds holding steady at 4.60% and 4.21%, respectively, at the time of publication. Notably, the USD failed to derive support from the uptick in US Treasury yields.
Further bolstering the Pound Sterling (GBP) was the recent revision by Fitch Ratings of the United Kingdom’s sovereign credit outlook to stable from negative. Fitch affirmed the UK’s sovereign credit rating at AA-, citing the country’s rebound to growth in January after a shallow recession in the second half of 2023. This resurgence was propelled by a notable uptick in retail sales and housing activity.
In line with positive economic indicators, UK Retail Sales for February surpassed expectations by remaining flat, defying market consensus of a 0.3% decline. This outcome signals optimism for the UK economy’s trajectory.
Looking ahead, market participants eagerly await the release of Gross Domestic Product (GDP) data for the fourth quarter of 2023 from both the United Kingdom (UK) and the United States (US) on Thursday. These releases are poised to provide further insights into the economic performance of both nations and may influence future market movements.
