06 Feb 2025

The Pound Sterling is experiencing downward pressure against its primary counterparts in anticipation of the Bank of England's monetary policy announcement scheduled for Thursday. It is generally expected that the Bank of England will reduce interest rates by 25 basis points to a level of 4.5%. Meanwhile, investors are closely monitoring the upcoming US Non-Farm Payroll data, as it is likely to impact projections regarding the Federal Reserve's monetary policy direction.

The Pound Sterling (GBP) is experiencing a decline against its primary counterparts on Thursday, as market participants await the monetary policy decision from the Bank of England (BoE), scheduled for announcement at 12:00 GMT. It is widely anticipated that the BoE will reduce interest rates by 25 basis points (bps) to 4.5%, with a voting outcome of 8-1. Catherine Mann, a member of the Monetary Policy Committee (MPC) known for her hawkish stance, is expected to advocate for maintaining interest rates at 4.75%.

The Bank of England (BoE) is anticipated to announce a decision to reduce interest rates in an effort to stimulate labor demand amidst stagnant economic growth. This would mark the third reduction in interest rates during the current cycle of policy easing, which commenced at the policy meeting in August 2024.

Employers in the United Kingdom have moderated their hiring pace following Chancellor of the Exchequer Rachel Reeves' announcement regarding an increase in employers' contributions to National Insurance. Recent employment data indicates that the growth of the labor force is slowing.

The growth of the UK Gross Domestic Product (GDP) remained unchanged in the third quarter and during the October-November timeframe.

Investors are expected to closely monitor the press conference held by BoE Governor Andrew Bailey following the policy announcement for insights into the inflation outlook and future monetary policy direction.

Inflationary pressures in the UK decreased more rapidly than anticipated in December. However, analysts at Citi predict a rise in inflation in the near future due to a significant increase in wage growth and a reversal in energy prices.

In the meantime, traders are anticipating a total interest rate reduction of 56 basis points for the year, following a quarter-point cut on Thursday.

Daily digest market movers: Pound Sterling slumps against USD as US NFP takes center stage

The Pound Sterling has declined to approximately 1.2440 against the US Dollar (USD) during Thursday's European trading session. The GBP/USD pair is experiencing a slight decrease as the US Dollar attempts to strengthen in anticipation of the upcoming Nonfarm Payrolls (NFP) data for January, set to be released on Friday.

The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, has found temporary support around 107.30 following a three-day decline from a two-week peak near 110.00.

The forthcoming US employment data is anticipated to influence market speculation regarding the duration for which the Federal Reserve (Fed) will maintain interest rates at their current levels. Last week, Fed Chair Jerome Powell indicated that any adjustments to monetary policy would only occur after observing "real progress in inflation or at least some weakness in the labor market," following the central bank's decision to keep interest rates steady in the range of 4.25%-4.50%.

According to the CME FedWatch tool, the Fed is projected to announce its next interest rate reduction during the policy meeting in June.

The US Dollar experienced a significant sell-off during the initial three trading days of the week as concerns over a global trade war diminished. Investors anticipate that the trade conflict will primarily involve the US and China, particularly after China responded to President Donald Trump’s implementation of 10% tariffs by imposing 15% tariffs on coal and liquefied natural gas (LNG), as well as 10% tariffs on crude oil, agricultural equipment, and certain automobiles. Concurrently, President Trump has temporarily suspended 25% tariff orders on Canada and Mexico for a period of 30 days.

Technical Analysis: Pound Sterling slides below 1.2500

The upside move in the Pound Sterling against the US Dollar has paused after rising above the psychological figure of 1.2500, which also coincided with the zone where the 50-day Exponential Moving Average (EMA) wobbles.

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting a sideways trend.

Looking down, the January 13 low of 1.2100 and the October 2023 low of 1.2050 will act as key support zones for the pair. On the upside, the December 30 high of 1.2607 will act as key resistance.