07 Mar 2025

GBP/USD remains stable as market participants exercise caution in anticipation of the US Nonfarm Payroll (NFP) data set to be released on Friday. The US Dollar experiences a decline as US Treasury yields decrease, driven by increasing expectations of more substantial Federal Reserve rate cuts this year. The Bank of England's Mann emphasized that the larger rate cut was aimed at more effectively conveying the policy stance.

GBP/USD shows minimal gains following losses in the previous trading session, hovering around 1.2880 during the Asian trading hours on Friday. The currency pair stabilizes as traders remain cautious ahead of the upcoming US Nonfarm Payrolls report, which is expected to be published later in the North American trading session.

The US Dollar Index (DXY), which evaluates the USD against six prominent currencies, has now experienced a decline for five consecutive days. This trend is attributed to decreasing US Treasury yields as market participants foresee more substantial interest rate reductions by the Federal Reserve this year, driven by concerns regarding US economic growth. Currently, the DXY is trading near 104.00, with the yields on 2- and 10-year US Treasury bonds at 3.94% and 4.24%, respectively.

Analysts at MUFG Bank suggest that there is a growing belief that the Federal Reserve may focus on mitigating slowing economic growth rather than prioritizing high inflation, particularly in light of US tariffs, which could negatively impact the US Dollar. A recent drop in consumer confidence reflects increasing worries among households about the inflationary effects of tariffs and the economic uncertainties arising from fluctuating policies in the United States.

In parallel, traders are closely monitoring global trade dynamics, as Canada has delayed its planned second round of retaliatory tariffs on US goods until April 2. This decision follows US President Donald Trump’s exemption of goods from Mexico and Canada under the USMCA from his proposed 25% tariffs.

In the United Kingdom, rate markets now anticipate fewer than 50 basis points (bps) in rate cuts from the Bank of England (BoE) in 2025, indicating a significant decrease in expectations as central banks grapple with ongoing inflation challenges.

Catherine Mann, a member of the BoE Monetary Policy Committee, remarked on Thursday that gradual adjustments to interest rates no longer provide clear guidance to the volatile financial markets. She stressed the necessity for more substantial changes to effectively "cut through" market noise for the benefit of the economy. According to Bloomberg, the larger rate cut she advocated for in the most recent meeting was intended to more clearly communicate the policy stance and influence economic conditions.