Global Market Insights: Inflation, Rate Cuts, and GBP/USD Outlook
Market Overview
President Trump’s threat of 25% tariffs on Europe and Asia, set for April, has left markets unfazed. US-Russia peace talk progress has boosted European shares, despite no immediate Trump-Putin meeting. The RBNZ cut rates by 50 bps,. The Fed is expected to maintain a hawkish tone, ruling out rate cuts, while UK inflation climbed to 3%, with moderate services inflation offering some relief.
Fundamental Analysis
The ONS data revealed that UK CPI figures rose to 3.0% y/y in January, exceeding the expected figure of 2.8%. The December reading was 2.5%. Core CPI, excluding food and energy prices, ticked to 3.7% y/y, meeting with the forecast. Services inflation also rose to 5% y/y from 4.4%, showing underlying inflationary pressure.
The Bank of England, which recently cut the rate to 4.5%, may find it hard to continue easing policy as the inflation target of 2% is yet too far. In his last speech, Governor Bailey signaled a cautious approach, adding more uncertainty to the British Pound outlook.
On the dollar front, the greenback remained soft amid a decline in Treasury yields. Fed officials reinforced the need to sustain higher interest rates longer to curb the persisting inflationary risk.
Moreover, the US President’s proposed tariff of 25% on imported cars and potential levies on pharma and semiconductor chips could dominate risk sentiment and dollar demand. Today’s FOMC meeting minutes may provide further guidance to the market.
The GBP/USD outlook depends primarily on inflation and central bank decisions. BoE rate cuts could be delayed, supporting the pound as a result. However, geopolitical risks and US trade policies could add volatility to the pair.
Technical Analysis
The 4-hour chart for the GBP/USD pair shows a stagnating outlook as bulls continue to lose steam above 1.2600. However, the price is still above the 20-period SMA and may wobble around it before a meaningful breakout. The downside projection is at 1.2557 support level ahead of 1.2500.
On the upside, 1.2640 remains the first resistance ahead of 1.2670 and 1.2700. The path of least resistance lies on the downside.
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