Pound sterling price retreats as U.S. dollar rebounds following weak services PMI
GBP/USD price chart showing resistance at $1.27
The Pound sterling (GBP) lost some of its earlier gains on Monday, retreating from a two-month high near 1.27 against the US dollar (USD). The GBP/USD pair fell as the US dollar recovered, with the US dollar index (DXY) rebounding to 106.50 after hitting a 12-week low of 106.10 earlier in the session.
The greenback’s initial weakness was driven by disappointing U.S. services sector data, which increased market expectations of a Federal Reserve (Fed) interest rate cut in June. The latest S&P Global Services PMI dropped to 49.7 in February, marking the first contraction in over two years and falling below market forecasts of 53. The weak data reinforced expectations that the Fed may ease monetary policy sooner than previously anticipated.
Despite the soft economic outlook in the U.S., the British pound’s rally remains constrained, with investors anticipating a moderate policy easing cycle from the Bank of England (BoE) amid mixed economic data.
GBP/USD price movement (Jan 2025 - Feb 2025) Source: TradingView.
Market expectations shift on BoE rate cut projections
Although UK economic indicators have shown resilience, traders expect the BoE to cut interest rates twice more this year, bringing the key policy rate down from 4.5%. However, some analysts at TD Securities project four additional rate cuts, citing potential economic uncertainty under a possible second Trump administration.
Stronger-than-expected UK inflation data, wage growth, and retail sales figures have challenged expectations of an aggressive BoE easing cycle. With BoE policymakers set to speak this week, their guidance on inflation and growth could further influence market sentiment.
In the technical outlook, GBP/USD remains above the 50-day EMA at 1.2584, suggesting continued bullish bias as long as it holds above the 1.262 pivot point. A break above 1.2725 could extend gains towards 1.2797, while a decline below 1.262 could trigger a pullback toward 1.2537 and 1.2453.
Investors eye key US economic data for further direction
This week, market participants will closely watch the US Durable Goods Orders and the Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation gauge—set for release on Thursday and Friday, respectively. These reports could provide further clarity on the Fed’s monetary policy trajectory and impact GBP/USD movements.
As previously discussed GBP/USD loses momentum near 1.2700 as traders assess U.S. rate-cut expectations.
