The Pound Sterling is poised for continued fluctuations as UK Chancellor Rachel Reeves prepares to deliver the Spring Statement this coming Wednesday. Investors are also keenly eyeing the upcoming Consumer Price Index (CPI) data for February, which is set to have a significant impact on the Bank of England’s monetary policy decisions. Meanwhile, encouraging preliminary figures from the US S&P Global PMI for March have bolstered the US Dollar.
On Tuesday, the Pound Sterling is trading cautiously against its major counterparts. The British currency is facing headwinds as Chancellor Reeves readies to present the Spring Statement. Her challenge will be steering the economy toward growth without imposing additional taxes or breaching fiscal rules.
In the aftermath of the Autumn Budget, Reeves addressed the Confederation of British Industry, emphasizing that public services must become self-sufficient and that external funding should be reserved exclusively for investment purposes. She also reassured that there would be no further tax hikes after criticism following the increase of employers’ contributions to National Insurance from 13.8% to 15%. This fiscal stance implies that substantial reductions in government spending may be on the horizon.
Such cutbacks may temper inflation expectations among consumers, potentially creating room for the Bank of England to lower interest rates in the short term.
Investors will also be focused on Wednesday’s release of the UK CPI figures for February, which are expected to shape market expectations surrounding the Bank of England’s policy outlook. Headline inflation is anticipated to slow to a year-over-year rate of 2.9%, down from January’s 3% rise. The core CPI, which excludes food and energy prices, is expected to register a slight increase of 3.6%, marginally down from 3.7%.
Regarding currency performance, the latest updates show that the British Pound was notably stronger against the New Zealand Dollar today. The accompanying table highlights the percentage changes of the British Pound against other major currencies.
Taking a closer look at market fluctuations, the Pound Sterling slipped slightly lower against the US Dollar on Tuesday, trading around 1.2915 during European hours. The GBP/USD pair is experiencing minor downward pressure as the US Dollar maintains its strength from Monday. This follow-through is largely due to favorable preliminary PMI data from the US and hopes that President Donald Trump’s upcoming tariff announcements on April 2 will be less extensive than previously feared. Monday’s report from S&P Global indicated a robust service PMI reading of 54.3, surpassing projections and February’s figures, suggesting a strong economic outlook given that services account for a significant portion of the US economy. The report also highlighted increased costs for business inputs, hinting at potential inflationary pressure ahead.
Even though the manufacturing sector saw a surprising dip in output, optimism remains as the expected tariff policies are likely to enhance the demand for domestically produced goods. In a recent statement, President Trump alluded to the possibility of exemptions for many countries from additional tariffs, which heightened the US Dollar’s appeal by suggesting less severe impacts on the economic outlook than initially predicted.
On the technical front, the Pound Sterling is drifting toward its 20-day exponential moving average near 1.2900. Currently, it is struggling to maintain support at the 61.8% Fibonacci retracement level, which was established from a high in late September to a low in mid-January, marked at 1.2930.
Despite these challenges, the 20-day and 50-day EMAs continue to project a bullish trend, and the relative strength index has cooled to about 60 after indicating overbought conditions last week. If the RSI can stabilize above 60, we might see a resurgence in bullish momentum.
Support levels are seen at the 50% Fibonacci retracement at 1.2770 and the 38.2% retracement at 1.2615, while a break above the October 15 high of 1.3100 would provide notable resistance.
Lastly, the forthcoming release of the UK’s Core CPI, a critical measure of inflation excluding volatile food and energy costs, will be crucial for traders. High readings are generally viewed as favorable for the British Pound, while lower readings can have the opposite effect.
