GBPUSD Holds Gains Amid Economic Concerns and Central Bank Signals

The GBPUSD pair trades near 1.2790 in early European hours on Wednesday, showing mild gains as market sentiment remains cautious. The US Dollar (USD) struggles near a three-month low due to concerns over slowing US economic growth and the impact of recently imposed tariffs. Investor focus is now on the upcoming US ISM Services PMI for February, which could influence the Greenback’s movement depending on the results.

Economic uncertainty continues to weigh on the markets, with the US imposing 25% tariffs on Mexican and Canadian imports and increasing duties on Chinese goods to 20%. These trade measures have added to fears of a global economic slowdown. “Fears about weaker US and global economic activity are manifesting in the markets, with cyclicals driving the sell-off,” noted Kyle Rodda, senior financial markets analyst at Capital.com. Despite a risk-off sentiment, the USD has struggled to attract buyers, failing to benefit from its traditional safe-haven appeal.

On the UK front, Bank of England (BoE) Governor Andrew Bailey downplayed inflation concerns, while Deputy Governor Dave Ramsden emphasized a cautious and gradual approach to monetary policy. Rising UK wages continue to support inflationary pressures, reinforcing expectations that the BoE will remain measured in its policy adjustments. ING’s FX analyst Francesco Pesole highlighted that despite the BoE’s February rate cut, stronger-than-expected economic data could push the central bank toward a more hawkish stance.

GBPUSD remains stable around 1.2800, with key support levels at 1.2564 and 1.2550, while the mid-December high of 1.2729 remains a technical target. On Tuesday, the Pound traded within a wide range, maintaining stability against most major currencies but showing some weakness due to a lack of UK economic data. Investors remained cautious ahead of key economic reports due later in the week, limiting Sterling’s momentum.

Looking ahead, the UK’s February services PMI is expected to show an uptick, potentially boosting the Pound if data meets expectations. Additionally, BoE Governor Bailey is set to speak, and any hawkish remarks could further support GBP. Meanwhile, the US ISM Services PMI is also forecast to rise, which may help the USD regain some strength. The release of US factory orders data for January, expected to show a rebound, could provide additional support to the Greenback.

In conclusion, the GBPUSD pair remains in a delicate balance, with economic data and central bank commentary driving sentiment. As traders assess upcoming reports, the pair's direction will likely depend on the strength of the US and UK economies and shifting monetary policy expectations.