03 Mar 2025

• The Pound Sterling rises to near 1.2650 against the US Dollar due to positive developments in the Russia-Ukraine peace truce.
• Fears of US President Trump’s tariffs on Canada, Mexico, and China loom large.
• The BoE is expected to follow a careful and gradual policy-easing approach.

The Pound Sterling has strengthened against the US Dollar (USD) following a two-day correction, rebounding to approximately 1.2650 during European trading hours on Monday. The GBP/USD pair has recovered as the risk premium associated with the US Dollar decreases, fueled by optimism regarding a potential peace agreement between Russia and Ukraine. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, has declined to around 107.25, down from a two-week high of 107.65 reached on Friday.

Nevertheless, investors are advised to exercise caution when considering significant positions against the US Dollar due to the impending tariff concerns. President Donald Trump is expected to impose tariffs on Canada, Mexico, and China for their failure to curb the influx of fentanyl into the United States.

US Commerce Secretary Howard Lutnick confirmed over the weekend that the President's intention to impose tariffs on Canada and Mexico is set for Tuesday, although he suggested that there may be room for negotiation regarding the extent of these tariffs. President Trump has threatened a 25% tariff on Canada and Mexico, along with an additional 10% on China, having already enacted a 10% tariff on China in early February.

This week, market participants will closely monitor a range of US economic indicators, particularly the Nonfarm Payrolls (NFP) data for February, which is scheduled for release on Friday. This labor market information is expected to shape market expectations regarding the Federal Reserve's (Fed) monetary policy trajectory. The Fed is anticipated to maintain steady interest rates during the March and May meetings, with a 77% probability of a rate cut in June, as indicated by the CME FedWatch tool.

During Monday's trading session, attention will be directed towards the US ISM and the revised S&P Global Manufacturing Purchasing Managers Index (PMI) data for February, which will be released during North American trading hours. The ISM Manufacturing PMI is projected to show a slight deceleration in growth, with an estimate of 50.8 compared to 50.9 in January.

Technical Analysis: Pound Sterling bounces back from 20-day EMA

The Pound movers higher above 1.2650 against the US Dollar on Monday. The GBP/USD pair finds buying interest after a mean-reversion move to the 20-day Exponential Moving Average (EMA) near 1.2560.

The 14-day Relative Strength Index (RSI) falls back within the 40.00-60.00 range, suggesting that the bullish momentum has concluded for now. However, the positive bias remains intact.

Looking down, the February 11 low of 1.2333 will act as a key support zone for the pair. On the upside, the 50% Fibonacci retracement at 1.2765 will act as a key resistance zone.