In early trading in Asia on Wednesday, the US dollar was weak and GBP/USD was stronger. The GBP/USD rebound has been supported by a weaker dollar and lower US Treasury yields. As of press time, GBP/USD was trading at 1.2608, with an intraday increase of 0.06%.
U.S. economic data was better than expected, and expectations for a rate cut by the Federal Reserve weakened. In addition, Federal Reserve Chairman Powell said on Sunday that it would not be appropriate to cut interest rates before having greater confidence that inflation will rise to 2%. The market currently sees a 15% chance of a rate cut in March and a 50% chance of a rate cut at the May meeting. This in turn boosts the US dollar (USD), which acts as resistance for GBP/USD.
Sterling faces the risk of a technical recession, which could lead Bank of England officials to shift to a dovish stance on interest rates. Huw Pill, chief economist at the Bank of England (BoE), said on Monday that for most central bank policymakers, the question now is when is the right time to start cutting interest rates, not whether. Meanwhile, Bank of England Governor Andrew Bailey said inflation was moving in the right direction and the Bank of England would continue to monitor borrowing costs.
