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Feb 08 - 11:55 AM

GBP/USD - COMMENT-Facing Fed Reluctance To Ease, Sterling Needs A Steely BoE

By Paul Spirgel  —  Feb 08 - 09:50 AM

Fed speakers have recently given backing Chair Powell's view that rate cuts could come later and slower than markets were anticipating, which pressure GBP/USD to probe new 2024 lows below 1.2518 unless the BoE comes out with a similarly more hawkish tone.

The weight of this week's Fed commentary, which followed a spate of robust data, left cable under pressure in early NorAm trading on Thursday.

and UK CPI on Feb 13-14 are the next reports that could help markets refine positioning, while central bank rhetoric will also remain in focus.

The UK's G7 leading inflation should keep rates high for longer, but the pound is likely to continue to dredge lows without more vocal rate support from the BoE.

Though the pound remains range-bound between 1.2788 and 1.2518, recent yen moves may be instructive for traders, as a refresher on the effects of rates on currencies.

Persistently dovish rhetoric from the BoJ has weakened the yen considerably versus the USD, GBP and EUR.
If the BoE were to abandon its inflation-led high-rate regime, seeking to stir growth as the BoJ has, the pound could slide significantly as recent sterling longs seek higher yields elsewhere.

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Refinitiv IFR Research/Market Commentary


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