In Wednesday’s European session, the Pound Sterling (GBP) struggled to maintain gains, retracing from a weekly high near 1.2670 against the US Dollar (USD). The previous day’s upward movement in the GBP/USD pair appeared incongruent with the broader depreciation of the US Dollar following slightly dovish comments from Bank of England (BoE) Governor Andrew Bailey and other policymakers during their testimony before the UK parliamentary Treasury Select Committee.
Governor Bailey acknowledged that market expectations for rate cuts were not “unreasonable” and hinted at positive signs indicating easing price pressures. However, he refrained from providing specifics regarding the timing and extent of any potential policy adjustments. BoE Deputy Governor Ben Broadbent indicated a shift in the central bank‘s focus from the degree of restrictive monetary policy to its duration. At the same time, BoE policymaker Swati Dhingra cautioned against the downside risks of maintaining restrictive interest rates on the UK economy.
Today’s market activity for the Pound Sterling will be influenced by the release of the Federal Open Market Committee (FOMC) minutes at 19:00 GMT, shedding light on the rationale behind maintaining interest rates within the range of 5.25%-5.50%. The US Dollar Index (DXY) is currently rebounding, but the overall sentiment remains weakened as Fed policymakers express confidence that inflation is moving in the desired direction.
Despite these factors, the Pound Sterling struggles to hold gains as market participants weigh the impact of potential rate cuts in the UK. Governor Bailey supported market expectations for unwinding historically restrictive interest rate stances but refrained from specifying the timing of such measures. He also raised concerns about a potential resurgence in inflation after a temporary return to the desired target in spring, emphasizing the Bank of England’s commitment to achieving sustainable price stability.
Looking ahead, the Pound Sterling’s performance will be influenced by the preliminary S&P Global/CIPS PMI data for February, set to be published on Thursday. The technical analysis indicates a Descending Triangle formation on a daily timeframe for the GBP/USD pair, with the 20 and 50-day Exponential Moving Averages acting as resistance around 1.2630. The Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, reflecting market indecisiveness. The Pound Sterling faces pressure as it attempts to recapture a two-week high of 1.2684 against the US Dollar.
