The GBP/USD pair continues its upward trajectory for the second consecutive session, edging near 1.2740 during Asian trading hours on Tuesday. Anticipation of the Bank of England‘s (BoE) commitment to its current restrictive policy stance in the upcoming meeting contributes to the positive sentiment surrounding the Pound Sterling (GBP). A Reuters poll aligns with these expectations, forecasting the BoE to maintain the policy rate at 5.25% in the February meeting.
The lackluster Retail Sales data for December in the United Kingdom (UK) exerted downward pressure on the GBP, signaling economic challenges and heightened price pressures. The substantial decline raises concerns about a potential technical recession, leaving policymakers at the BoE in a dilemma regarding the appropriate course of action.
Investor focus shifts to the preliminary UK S&P Global PMI data for January, scheduled for release on Wednesday, providing crucial insights into the current state of economic activity in the UK. This data could significantly impact market sentiment and influence the performance of the GBP/USD pair.
Meanwhile, the US Dollar Index (DXY) hovers around 103.10, with the demand for the USD potentially influenced by risk aversion stemming from heightened geopolitical tensions in the Middle East. Investors seeking safety in the safe-haven USD could undermine the GBP/USD pair.
Later in the North American session, attention turns to the release of the Richmond Fed Manufacturing Index for January, offering further insights into the state of the US economy. Traders will closely analyze this data for potential impacts on the US Dollar and broader economic trends. The interplay between geopolitical developments, economic indicators, and central bank policies is likely to shape the near-term dynamics of the GBP/USD pair.