GBP/USD Holds Above 1.2800, BoE Eyes 2% Inflation

Key Points

• GBP/USD holds above 1.2800, influenced by BoE rate cut speculations
• The market anticipates a rate cut in June, with UBS forecasting a 25 bps reduction in August.
• UK’s economic indicators present a mixed picture: strong employment but weak manufacturing PMI.
• BoE maintains interest rates, signalling a focus on meeting the 2% inflation target.
• Upcoming UK and US economic reports are expected to shape market sentiment and currency dynamics.

Following its recent meeting, the Bank of England (BoE) has opted to maintain interest rates at their current levels. This choice reflects a strategic departure from tightening measures, even as the commitment to higher rates remains steadfast in pursuing the 2% inflation target. Attention in the market is now towards a potential rate reduction projected for June, particularly in light of comments made by BoE policymaker Catherine Mann regarding the UK’s divergence from the inflation target. UBS Global Research has adjusted its forecast, anticipating a 25 basis points cut in August, a departure from the earlier May projection.

UK Jobs Up, Manufacturing PMI Down

The UK’s latest economic reports offer a kaleidoscope of data. The employment report surpassed expectations, positively adjusting December’s payroll figures. However, the Consumer Price Index (CPI) fell short, with high services inflation. The Purchasing Managers’ Index (PMI) further outlined the economic landscape: services outperformed expectations, contrasting with manufacturing’s underperformance. These indicators are pivotal, shedding light on the BoE’s policy considerations.

GBP/USD Stays Strong Above 1.2800

The GBP/USD pair has demonstrated resilience, sustaining a defensive position above the 1.2800 support level in the early Asian trading session. With trading figures hovering around 1.2814, there is no significant change in the currency pair’s movement for the day. The primary factors influencing its performance include adjusted BoE rate cut expectations, upcoming UK labour market data, and the US CPI inflation report. These elements collectively contribute to the current cautious sentiment in the market.

GBP/USD: CPI to Hit 3.1%, Core CPI May Ease to 3.7%

Noteworthy economic reports are on the horizon, spotlighting the UK labour market and US CPI inflation data for February. Forecasts indicate a year-on-year CPI of 3.1%, accompanied by a modest easing in Core CPI from 3.9% to 3.7%. These reports hold significant importance, potentially influencing market dynamics and impacting the trajectory of the GBP/USD pair.

US CPI and GBP/USD: Watch Feb Data

The market remains wary, bracing for the forthcoming UK and US economic data releases. The US dollar could find support from steady inflation rates and a projected decrease in Core CPI. A stronger-than-expected US CPI report could reinforce the USD, posing challenges for the GBP/USD pair. This intricate interplay of economic data, market expectations, and policy decisions forms the backdrop against which the future movements of the GBP/USD pair will unfold, highlighting the importance of vigilant monitoring and analysis in the ever-evolving financial landscape.