Daily Price Outlook
During the European trading session, the GBP/USD pair extended its losses and hovered near 1.2640 as the US Dollar strengthened.
The US Dollar Index (DXY) rebounded strongly from an 11-week low of 106.10, regaining momentum and exerting pressure on the British Pound.
Dovish BoE Comments Weigh on GBP
The British Pound faced selling pressure after dovish remarks from Bank of England (BoE) Monetary Policy Committee (MPC) member Swati Dhingra. Speaking at Birkbeck on Monday, Dhingra expressed concerns about "weakness in consumption" and advocated for aggressive monetary policy easing.
While markets have priced in two rate cuts by the BoE this year, Dhingra suggested that more than four cuts might be necessary to avoid an excessively restrictive stance.
Earlier this month, the BoE lowered borrowing rates by 25 basis points (bps) to 4.5% and guided a gradual easing approach.
However, the central bank also halved its GDP forecast for the year to 0.75% and warned of a potential temporary rise in inflation during Q3 due to higher energy costs.
The uncertain UK economic outlook, coupled with potential US tariffs from former President Donald Trump, further dampened investor confidence in the Pound.
US Dollar Strengthens on Rising Yields and Fiscal Developments
On the US front, the US dollar rebounded as US Treasury yields recovered from a five-day losing streak. The 10-year US Treasury yield climbed to 4.33% after hitting a fresh two-month low of 4.28% earlier in the Asian session.
The rise in yields was supported by the House of Representatives advancing a $4.5 trillion tax cut plan, which includes provisions for border security, energy deregulation, and increased military spending.
The injection of significant liquidity into the economy raised inflation concerns, prompting speculation that the Federal Reserve may keep interest rates elevated for longer.
Meanwhile, weak US S&P Global PMI data for February heightened expectations of Fed rate cuts. The latest flash PMI report showed that the US service sector contracted for the first time in over two years.
As a result, traders increased their bets on a Fed rate cut in June, with the probability rising to 65% from 47% a week ago, according to the CME FedWatch tool. However, markets remain convinced that the Fed will maintain its current borrowing rate of 4.25%-4.50% through the March and May meetings.
Key Data Releases Ahead
Looking ahead, investors will closely watch the upcoming US Durable Goods Orders data on Thursday and the Personal Consumption Expenditures (PCE) Price Index report on Friday.
The PCE inflation data will be a crucial factor in shaping market expectations for the Fed’s monetary policy outlook, potentially influencing the GBP/USD pair's movement in the coming sessions.
GBP/USD – Technical Analysis
GBP/USD is trading at $1.26528, down 0.01%, reflecting a cautious sentiment as it hovers above the pivot point at $1.26211. The pair is trading slightly above the 50 EMA at $1.26219, signaling short-term bullish momentum.
If the price maintains its position above the pivot, the next target is immediate resistance at $1.26896. A break above this level could push prices towards $1.27569, with a further move towards $1.28233 if bullish momentum continues.
On the downside, if GBP/USD breaks below the pivot at $1.26211, it would shift sentiment to bearish, targeting immediate support at $1.25660.
A deeper decline could see the pair testing $1.25087, with a more substantial floor at $1.24528 if selling pressure intensifies. The 50 EMA at $1.26219 acts as dynamic support, and a break below this level would confirm a bearish reversal.
The technical outlook suggests a cautious buy above the pivot at $1.26218, targeting $1.27126 with a stop loss at $1.25869.
This setup aligns with the short-term bullish bias while maintaining a favorable risk-reward ratio. Traders should watch for volume confirmation and price action around the $1.26896 resistance to validate the bullish momentum.
Conversely, a break below $1.26211 would invalidate the bullish setup and shift sentiment to bearish, likely driving prices towards $1.25660 and beyond.
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