Pound Strengthens as Markets Reduce BoE Cut Bets
GBP/USD rose around 0.3% on Monday, approaching 1.3450, after weakening to the 1.3280 area earlier in the session. Prices then oscillated around 1.3400, indicating the market is entering a consolidation phase following the rebound.
The pound's strengthening occurred as markets aggressively reduced expectations for a Bank of England (BoE) interest rate cut following the Strait of Hormuz crisis. The probability of a cut this month fell to below 20% from over 80% before the conflict, while UK interest rate futures now project less than one 25 bps cut for the remainder of 2026. Surging energy costs are seen as a risk of keeping inflationary pressures high, narrowing the scope for policy easing.
Globally, this week's main agenda item is the release of the US February CPI on Wednesday, with consensus forecasts for headline inflation of 0.3% (MoM) and 2.4% (YoY). This data will determine the direction of the dollar and risk appetite, which ultimately influences GBP/USD dynamics.
In the UK, Thursday will feature the release of January industrial production and a speech by Bank of England Governor Andrew Bailey. Friday will follow UK GDP data for January, estimated at 0.2% (MoM) and manufacturing production at 0.2% (MoM). In the US, the market is also awaiting January core PCE inflation (estimated at 0.4% MoM and 3% YoY), preliminary Q4 GDP at 1.4% (annualized), and the Michigan consumer sentiment index (March) at 55.
Looking ahead, the market will be monitoring two main channels: developments in energy prices, which shape inflation expectations and Bank of England interest rates, and US inflation data, which determines the direction of the dollar. The combination of the two will be the main drivers of GBP/USD volatility for the remainder of the week. (alg)
Source: Newsmaker.id
