GBPUSD Holds Strong Amid US Inflation Uncertainty

The Pound Sterling (GBP) remains firm near a four-month high of 1.2965 against the US Dollar (USD) during Wednesday's European session. The GBPUSD pair maintains its upward momentum while the US Dollar finds temporary support ahead of the United States (US) Consumer Price Index (CPI) data for February, set for release at 12:30 GMT. This key inflation report is expected to shape market expectations regarding the Federal Reserve's (Fed) monetary policy stance.

Economists forecast that headline inflation will ease to 2.9% from January's 3%, while core CPI, which excludes volatile food and energy prices, is projected to dip slightly to 3.2% from 3.3%. If the data confirms slowing inflation, market speculation about a Fed interest rate cut in May may intensify. According to the CME FedWatch tool, the probability of a rate cut in May has risen to 42%, up from 10.4% a month ago. Conversely, if inflation remains elevated, it could reduce the likelihood of near-term policy easing.

The Pound Sterling trades steadily against major currencies as investors await the Bank of England's (BoE) policy decision next week. The BoE is widely expected to maintain interest rates at 4.5%, as policymakers have signaled a "gradual and cautious" approach to easing. While most officials support this measured strategy, BoE member Catherine Mann advocates for a faster pace of policy easing due to volatility from global financial markets. This week, attention will also turn to the United Kingdom's (UK) Gross Domestic Product (GDP) and industrial production data for January, due on Friday. The UK economy is expected to grow modestly by 0.1%, down from December's 0.4% expansion.

Geopolitical developments also weigh on market sentiment. US President Donald Trump's tariff policies continue to create global uncertainty. Trump recently threatened to double tariffs on Canadian steel and aluminum but withdrew after Ontario's Premier agreed to roll back a 25% surcharge on electricity exports to the US. US Commerce Secretary Howard Lutnick suggested that Trump's tariffs are primarily a negotiation tactic to strengthen the US's bargaining position with its trading partners.

Despite global trade concerns, the GBPUSD pair extended its bullish rally on Tuesday, reaching 1.2950—its highest level in 18 weeks. The pair's strength comes amid a backdrop of mixed US economic data. While job openings in January exceeded expectations, rising to 7.74 million, the focus remains on Wednesday's CPI release. Investors hope for signs of easing inflation following January's unexpectedly high figures, which disrupted expectations for an early Fed rate cut. Producer Price Index (PPI) data, due Thursday, is also expected to show persistent inflationary pressures.

Looking ahead, market participants will closely watch the University of Michigan Consumer Sentiment Index and inflation expectations on Friday. Sentiment is forecast to decline slightly as concerns grow about the US economy under Trump's trade policies. The Nasdaq fell 4% and the S&P 500 dropped 2.5%, reflecting broader market unease. This risk-off sentiment has weakened the Pound against safer currencies like the USD and Euro but strengthened it against high-beta currencies like the Australian and New Zealand Dollars.

In the near term, GBPUSD remains in bullish territory but faces technical resistance near the 1.3000 level, which previously acted as a consolidation point in late 2024. While momentum favors buyers, overbought technical indicators suggest a potential pullback. The trajectory of the GBPUSD pair will likely hinge on upcoming US inflation data and the BoE's policy guidance, as well as broader geopolitical developments.