- The Pound Sterling scaled a four-month high against the US Dollar and hung near 1.3000.
- GBP/USD looks for a fresh upside as the Fed and BoE policy decisions loom.
- The pair hovers near the overbought zone while price remains above key daily moving averages.
The Pound Sterling (GBP) almost tested the critical 1.3000 level against the US Dollar (USD) in the past week, driving the GBP/USD pair to its highest level in four months.
Pound Sterling stood tall amid tariff wars, USD rebound
GBP/USD stretched its previous week’s positive momentum and reached four-month highs just shy of the 1.3000 threshold on Wednesday before entering an upside consolidative phase in the remainder of the week.
US President Donald Trump’s tariff uncertainty, easing fears over a potential recession and aversion to the US government shutdown emerged as key factors lifting the sentiment around the US Dollar. Trump’s 25% global tariffs on imported steel and aluminium came into effect on Wednesday, topping the previously announced tariffs on China and certain Canadian and Mexican products.
Amid an escalating trade war, the EU responded to blanket US tariffs on steel and aluminium by imposing a 50% tax on American whiskey exports, prompting Trump to threaten a 200% tariff on imports of European wines and spirits.
Meanwhile, the US-Canada tariff war took a positive turn after Ontario Premier Doug Ford said on Thursday there will be another meeting next week between Canadian and American trade officials, following his ‘productive conversations’ with US Commerce Secretary Howard Lutnick.
On Wednesday, the US Consumer Price Index (CPI) rose less than expected across the time horizons, easing US economic slowdown concerns spurred by Trump’s tariffs. The US annual headline CPI rose 2.8% in February versus January’s 3% and the expected 2.9% figure. The monthly CPI and core CPI increased by 0.2% in the same period.
The US Dollar tracked the US Treasury bond yields higher heading into the weekend as risk sentiment improved on an aversion to the US government shutdown and hopes of a US-Canada trade truce.
The Pound Sterling struggled to keep the upper hand on the US Dollar re-emergence, courtesy of the divergent monetary policy expectations between the Bank of England (BoE) and the Fed. The US inflation cooldown doubled on the bets that the Fed will resume its rate-cutting cycle starting in June. On the other hand, the BoE has stuck to its cautious rhetoric, hinting at fewer rate cuts amid uncertainty on the inflation outlook.
An unexpected contraction in the UK economy in January also limited the Cable’s upside. The UK Gross Domestic Product (GDP) fell 0.1% after increasing 0.4% in December, according to the latest data published by the Office for National Statistics (ONS) on Friday. Markets projected a 0.1% growth in the reported period. Later in the day, the data from the US showed that the University of Michigan’s Consumer Sentiment Index declined to 57.9 in March’s flash estimate from 64.7 in February. This data made it difficult for the USD to gather strength and helped GBP/USD hold its ground heading into the weekend.
Week ahead: Fed and BoE policy verdicts to stand out
It’s a busy week from the word go, with the US Retail Sales data due on the cards on Monday.
Tuesday will feature the mid-tier US housing and the Industrial Production data as the UK data docket remains dry.
All eyes will be on the Fed policy announcements on Wednesday, accompanied by the Statement of Economic Projections (SEP), the so-called Dot Plot chart. The Fed’s outlook on inflation and interest rates will drive the direction of the US Dollar, significantly impacting the GBP/USD pair.
On Thursday, the UK labor market data will be reported before the BoE policy decision. The BoE’s hints on the timing and the scope of further rate cuts will be closely scrutinized for a clear directional impetus on the Pound Sterling.
There are no top-tier US and UK statistics due on Friday, and hence, the focus will remain on the speeches from Fed policymakers as they return to the rostrum after the ‘blackout’ period.
Apart from the economic data and Fedspeak, tariff headlines will continue to drive markets.
GBP/USD: Technical Outlook
The daily chart shows that GBP/USD needs acceptance above the November 6, 2024, high of 1.3048 to extend the uptrend if buyers take out the 1.3000 barrier.
The door would then open up for a test of the 1.3150 – 1.3200 resistance area.
The 14-day Relative Strength Index (RSI) has eased off the overbought region to trade around 68.50 at the moment. The leading indicator suggests that more upside remains in the offing.
The 21-day Simple Moving Average (SMA) is looking to pierce the 200-day SMA from below, which will validate a Bull Cross if it happens on a daily closing basis.
Adding credence to the bullish potential, the pair trades well above the major daily SMAs.
Should a correction unfold, the immediate downside target is the weekly low of 1.2862.
The 200-day SMA at 1.2792 could come into play on additional declines, exposing the 21-day SMA support at 1.2750.
A sustained break below the latter will likely trigger a fresh downtrend toward the 100-day SMA at 1.2615.
