Sterling's recent rise on diminished global tariff uncertainties and easing UK fiscal concerns is being overshadowed by a renewed focus on the U.S.-UK rate differential, which is shifting in the dollar's favor. Markets appeared to interpret Friday's non-farm payrolls report as broadly supporting the Fed's wait-and-see policy approach on policy, pushing U.S. rate expectations slightly higher in 2025 and widening the U.S.-UK rate gap, especially in the wake of Thursday's dovish BoE cut. GBP/USD reversed initial post-data gains on Friday, falling from its flash high 1.2490 to 1.2453, as markets shrugged off the downside headline payrolls surprise, focusing instead on upward revisions and rising earnings, which reduced Fed 2025 rate cut odds. This should increase the difficulty of sterling rising above the post-tariff delay high by 1.2550, struck on Feb. 5, and the 50% Fib of the 1.3043-1.21 November 2024-January 2025 range at 1.2571. Sterling traders will now look to U.S. CPI on Feb. 12 and UK price data on Feb. 19 for clues on the inflation outlooks and Fed and BoE policy. Any shift in the current steady Fed outlook or more-dovish BoE policy path may move GBP/USD out of its recent 1.2550-1.21 range.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)