Pound Sterling is making gains against the US Dollar as market sentiment improves and the US Dollar undergoes a slight correction. The GBP/USD pair rose above 1.2650 during the London session on Tuesday, signalling a recovery despite expectations of a more dovish stance from the Bank of England (BoE) this year.
BoE Governor Bailey mentioned that market expectations for two or three rate cuts are reasonable but clarified that the central bank still needs to be ready to reduce interest rates. However, two BoE policymakers, Catherine Mann and Jonathan Haskel, who previously supported rate hikes, have shifted their stance, contributing to the belief that inflation in the UK is moving in a positive direction.
Additionally, Catherine Mann stated that her change in the vote was influenced by consumer behaviour affecting pricing, evolving labour market dynamics, and changes in the financial market curve. She also remarked that the market may be overly pricing in rate cuts.
This week, market sentiment will likely dictate the Pound Sterling’s movement, as the UK’s economic calendar is relatively light. Investors will closely monitor the US core Personal Consumption Expenditure Price Index (PCE) data for February, scheduled for release on Good Friday.
The Pound Sterling has found support near 1.2580 and shows buying interest amidst the US Dollar’s corrective phase. However, the Bank of England’s slightly dovish tone on interest rates may continue weighing the Pound Sterling’s prospects. BoE Governor Bailey expressed optimism about the economic outlook but noted that inflationary pressures are not persisting significantly.
Technical analysis indicates that the Pound Sterling is rebounding above the critical support level of 1.2600, with the 200-day Exponential Moving Average providing crucial support. The Relative Strength Index (RSI) suggests a pullback in bearish momentum if it remains above 40.00.
In summary, while the Pound Sterling shows signs of recovery against the US Dollar, market sentiment and upcoming economic data will play critical roles in determining its trajectory in the near term.
