Dollar Strengthens, Pound Under Pressure: What's the Main Trigger?
GBP/USD weakened to the 1.3670 area in early European trading on Monday, dropping below 1.3700. The pressure came from a stronger US dollar, as markets saw more stable US sentiment and began recalculating the direction of future monetary policy.
A major trigger was Donald Trump's decision to select Kevin Warsh as his candidate for the next Federal Reserve chairman. Warsh is seen as favoring a smaller central bank balance sheet and the possibility of interest rates remaining higher for longer—a combination that typically strengthens the dollar and weighs on GBP/USD.
The dollar also received additional support from tepid US consumer inflation data. The Bureau of Labor Statistics reported that the Consumer Price Index (PPI) rose 3.0% (YoY) in December, above the 2.7% forecast. On a monthly basis, the PPI rose 0.5% (MoM), higher than consensus and the previous reading of 0.2%—strengthening the argument that US interest rates could remain tight for longer.
The market is now awaiting the release of the ISM Manufacturing PMI data from the Institute for Supply Management this Monday. A strong ISM figure has the potential to keep the dollar firm, while a weak result could give the pound a temporary respite.
From the UK side, the next focus is the Bank of England's interest rate decision on Thursday. The BoE is expected to hold rates at 3.75%, after a close vote earlier, with some policymakers signaling the pace of rate cuts could slow. Andrew Bailey and his team are likely keeping their options open—meaning the direction of GBP/USD remains highly sensitive to the gap between US and UK interest rate expectations. (asd)
Source: Newsmaker.id
