The GBP/USD currency pair saw a pullback during the early Asian session on Tuesday, trading around 1.2300 after gaining more than 1% in the previous session. The pair faced resistance as the US Dollar (USD) regained some of its recent losses, buoyed by news that President Donald Trump plans to direct federal agencies to review tariff policies and reassess the United States’ trade relationships with major partners such as Canada, Mexico, and China.
The US Dollar Index (DXY), which tracks the performance of the USD against six major currencies, hovered around 108.30, having trimmed its recent gains. The dollar continues to face some downward pressure, with US Treasury yields on 2-year and 10-year bonds remaining subdued at 4.23% and 4.54%, respectively, at the time of writing.
Market expectations, as indicated by the CME FedWatch tool, suggest that the US Federal Reserve will maintain its current interest rate range of 4.25%-4.50% over the next three policy meetings. However, there is growing speculation that the policies under Trump’s administration could lead to inflationary pressures, potentially limiting the Fed to a single additional rate cut.
Meanwhile, the British Pound (GBP) had strengthened in the prior session, spurred by increased demand for UK gilts after weaker-than-expected UK Retail Sales data for December. Retail sales contracted by 0.3%, defying expectations for a 0.4% increase, following a modest 0.1% rise in November.
This unexpected drop in UK Retail Sales has strengthened dovish expectations for the Bank of England (BoE). Oxford Economics analysts now forecast that the BoE may cut interest rates by as much as 100 basis points (bps), bringing them down to 3.75% by the end of the year.
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