In the fast – paced world of foreign exchange, the Pound Sterling (GBP) has been showing signs of recovery against the US Dollar (USD), buoyed by growing expectations of a dovish Federal Reserve (Fed) stance.
Fed Dovish Bets: A Catalyst for GBP/USD Movement
Traders have been increasing their bets on the Fed adopting a dovish approach, specifically at its June meeting. This has provided a significant boost to the Pound Sterling. The underlying cause of these expectations is the rising fear of a US economic recession. According to the CME FedWatch tool, market participants are almost certain that the Fed will resume its monetary policy easing cycle in June, a cycle that was put on hold in January.
The uncertainty surrounding the US economy has been exacerbated by the ongoing US – China trade war. President Donald Trump’s imposition of reciprocal tariffs, along with the anticipation of countermeasures from China and the Eurozone, has sent shockwaves through the financial markets. Investment banking giant Goldman Sachs has revised its forecast, raising the probability of the US entering a recession to 45% from 35% as predicted the previous week.
Fed officials seem to be grappling with the implications of the protectionist policies. Chicago Federal Reserve Bank President Austan Goolsbee, in an interview with CNN on Monday, expressed concerns. He warned that if the tariffs were as extensive as threatened and there was a cycle of retaliation and counter – retaliation, it could lead to an inflationary situation similar to 2021 – 2022. Goolsbee also stated that there is no one – size – fits – fits – all answer for the Fed when dealing with stagflation.
GBP’s Performance Amid Global Economic Uncertainty
In Tuesday’s European session, the GBP/USD pair initially gave up a substantial portion of its intraday gains. However, it still managed to end 0.25% higher, trading near 1.2850. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, rebounded from an intraday low of 102.78 but was still down 0.2% at around 103.25 at the time of reporting.
Despite the short – term gains, the Pound Sterling underperformed some of its major peers on Tuesday. Market experts believe that the US – China trade war could have a spill – over effect on the UK economy. A large – scale trade war between the two economic powerhouses could lead to Chinese firms dumping products in other markets. Given China’s cost – competitiveness in manufacturing, UK businesses may struggle to compete, which could lead to a significant decline in UK business activity. This scenario would be detrimental to the Pound Sterling.
UK Prime Minister Keir Starmer has vowed to protect domestic firms from the impact of Trump’s tariffs. He stated over the weekend that the government is prepared to use industrial policy to shield British businesses. Additionally, the escalating economic risks in the UK may prompt the Bank of England (BoE) to adopt an aggressive monetary policy easing strategy this year. The BoE has already cut interest rates in one of its two policy meetings in 2025 and is expected to make two more cuts.
Key Data and Technical Outlook
This week, the British currency’s performance will be closely watched in relation to two important economic data releases. The US Consumer Price Index (CPI) data for March, scheduled for Thursday, and the monthly UK Gross Domestic Product (GDP) data for February, set to be released on Friday, will likely have a significant impact on the GBP/USD pair.
From a technical perspective, the Pound Sterling is trading below the 20 – day Exponential Moving Average (EMA), which is approximately 1.2887. This indicates a bearish near – term trend. The 14 – day Relative Strength Index (RSI) has fallen to around 40.00. If the RSI fails to hold above this level, it could trigger a fresh wave of bearish momentum. On the downside, the 38.2% Fibonacci retracement level, around 1.2600 (plotted from the late – September high to the mid – January low), will act as a crucial support zone. On the upside, the psychological level of 1.3000 will serve as a key resistance level for the GBP/USD pair.
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