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Mar 25 - 11:55 AM

GBP/USD - COMMENT-Sterling Slide On Dovish BoE Outlook Stalls By Its 200-DMA

By Paul Spirgel  —  Mar 25 - 10:20 AM

Sterling extended Monday's rebound into the New York session, rising away from Friday's 5-week low at 1.2576, as bruised support at the 200-DMA by 1.2592 held on a closing basis, though the pound remains at risk of retesting trend lows as short-term rate markets are pricing a more dovish BoE in 2024.

Loftier UK rate expectations had lifted the pound earlier this month to 2024 highs at 1.2894, but were dialed back significantly after February UK core CPI came in below consensus forecasts at 4.5%, well below January's 5.1%, shifting the expected timing of BoE rate cuts more in line with other central banks, punishing sterling.

However, on a relative basis, UK rates are likely to remain buoyant versus the USD and EUR as UK inflation rates remain well above those the U.S. and euro zone, and the symmetrical nature of expected cuts should temper sterling declines.

While core CPI at 4.5% is likely to keep UK rates high, the BoE has taken on a decidedly less-hawkish tilt after the recent 8-1 MPC vote and while inflation remains high, the BoE has pledged to remain vigilant on inflation even as they cut rates.

Should the 200-DMA give way GBP/USD will find support at the 2024 low at the Feb.
5 1.2518 low.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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