In Tuesday’s London session, the Pound Sterling (GBP) continued its ascent, reaching 1.2650 against the US Dollar (USD), as profit-taking weighed on the latter following recent highs. Despite concerns over a potentially dovish stance from the Bank of England (BoE) this year, prompted by lower-than-expected inflation figures for January and February, the GBP/USD pair demonstrated robust recovery.
During the March meeting, two BoE policymakers, Catherine Mann and Jonathan Haskel, who had previously advocated for rate hikes, revised their positions, signaling a shift toward a more dovish outlook on interest rates. However, the Bank emphasized that it is not currently considering a reduction in interest rates, although it did not dismiss the market’s expectation of two or three rate cuts this year.
This week, market sentiment will heavily influence the Pound Sterling’s trajectory, with a sparse UK economic calendar. Attention will be particularly focused on the release of the US core Personal Consumption Expenditure Price Index (PCE) data for February, scheduled for Good Friday, with forecasts indicating a steady growth rate of 2.8%.
The US Dollar Index (DXY), tracking the USD against major currencies, retreated to 104.16 as the Fed‘s stance on potential interest rate cuts in the upcoming June policy meeting gained traction. Despite the Fed’s confidence in easing underlying price pressures, concerns persist regarding stubborn Consumer Price Index (CPI) inflation fueled by rising rents and service costs. Fed Governor Lisa Cook noted on Monday that although housing-services inflation remains high, the pace of increase in new rental leases suggests a forthcoming decline.
While improved market sentiment provided some support for the Pound Sterling, the Bank of England’s dovish stance on interest rates continues to exert downward pressure. In the recent monetary policy meeting, no policymakers advocated for a rate hike for the first time since September 2021, with Catherine Mann, previously expected to support a hike, notably absent.
BoE Governor Andrew Bailey, speaking to the Financial Times, acknowledged that market expectations for rate cuts this year are reasonable and expressed optimism regarding economic prospects. Regarding inflation, Bailey remarked, “We are not seeing a lot of sticky persistence.”
Trading volume may remain subdued this week due to Good Friday, compounded by a light economic calendar in the UK. However, the US core PCE Inflation data for February will be closely monitored.
Technical Analysis: Pound Sterling Rebounds Above Key Support Level
Following a dip below the critical support of 1.2600, the Pound Sterling has rebounded, finding stability above this level. The GBP/USD pair has maintained a sideways trajectory within the range of 1.2500 and 1.2900 over the past four months. Notably, the 200-day Exponential Moving Average (EMA) at 1.2558 is expected to provide significant support for Pound Sterling bulls.
The 14-period Relative Strength Index (RSI) experienced a pullback after dropping to 40.00, indicating a potential reversal in bearish momentum. Further movements below this level could signal increasing bearish pressure.
