Sterling rose above its 55-DMA at 1.2510 and recent trend high at 1.2523 in Wednesday trade, driven by unwinding dollar longs following recent U.S. tariff deescalation, though the pound's current bid may be short-lived as attention shifts to monetary policy ahead of Thursday's BoE rate decision and Friday's U.S. payrolls data. Ahead of President Trump’s Feb. 1 tariff deadline, sterling selling intensified, flipping the IMM position to negative. GBP/USD weakened even though the UK was not a primary target. Adding pressure was the expectation of a dovish BoE cut. LSEG’s IRPR projects the Fed's overnight rate at 4.01% by end-2025, slightly higher than the BoE's 3.9%. While both central banks are expected to end 2025 with near identical policy rates, STIR futures suggest slightly different paths in the near-term, with the Fed's next cut expected in June or July, and the BoE is seen cutting twice by its June 19 MPC meeting.

With rates and inflation back in focus, Thursday's BoE rate decision and Friday's U.S. payrolls data will be closely watched for clues at any shift in the current rate stasis. In the absence of a policy or data surprise, resistance at 1.2571, the 50% Fib of 1.3043-1.21, and the daily cloud base at 1.2594 may cap further gains.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)