The Pound Sterling remains stable against the US Dollar as investors exercise caution over US President Donald Trump's tariff policies. Despite fears surrounding Trump's tariff agenda, the GBP/USD pair remains unaffected by recent German election results, primarily benefiting from the weakness of the US Dollar. This week, investors are keenly focused on the impending release of US economic data, particularly the Durable Goods Orders and the Personal Consumption Expenditures Price Index for January, slated for Thursday and Friday.
The GBP/USD pair faces notable resistance, with key Fibonacci retracement levels identified at 1.2767 and 1.2927. These levels are anticipated to play a crucial role in determining the currency pair's trajectory in the coming days. Furthermore, the 200-day Exponential Moving Average, positioned around 1.2680, presents a significant challenge for upward momentum. Currently, the GBP/USD holds steady around the 38.2% Fibonacci retracement from the end-September high to mid-January low downtrend, hovering near 1.2620.
In monetary policy developments, Bank of England (BoE) Monetary Policy Committee member Swati Dhingra has advocated for an accelerated monetary expansion cycle to address weak demand conditions. Dhingra, alongside fellow policymaker Catherine Mann, voted for a 50 basis points interest rate reduction in the last BoE monetary policy meeting. The BoE recently reduced its key borrowing rates by 25 basis points to 4.5% and signaled a gradual easing stance moving forward. Market observers have already priced in expectations of two additional 25 basis point rate cuts by the BoE later this year, likely following the March policy meeting.
"I know 'gradual' has been interpreted in the media as 25 basis points (bps) per quarter, but cutting interest rates at this pace for the remainder of 2025 would still leave monetary policy in an undesirable restrictive position at the end of the year,” – Swati Dhingra
Across the Atlantic, market participants are closely monitoring US PCE inflation data, which is expected to influence speculation regarding the Federal Reserve's future monetary policy actions. Chicago Fed Bank President Austan Goolsbee emphasized the need for 'more clarity' on the full impact of Trump's policies before considering a shift back to cutting interest rates.
The Federal Reserve has maintained interest rates within a range of 4.25% to 4.50%, opting to wait for clearer indicators of how Trump's economic strategies might affect inflation and overall economic conditions. Meanwhile, President Trump reaffirmed his commitment to implementing tariffs on imports from Canada and Mexico as planned, further fueling investor caution.
In commodity markets, gold prices continue to exhibit an offered tone during the early European session on Tuesday, trading near the $2,935 region. This reflects ongoing uncertainty in global markets as investors weigh potential economic impacts stemming from policy decisions on both sides of the Atlantic.