GBP/USD price forecast: Pound sterling stabilizes as U.S. core PCE inflation cools
GBP/USD trades near $1.26 as U.S. PCE inflation cools and BoE policy remains cautious
The pound sterling (GBP) held steady near $1.26 against the U.S. dollar (USD) in Friday’s North American session after the release of U.S. core PCE inflation data, which showed a cooling trend. The core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, slowed to 2.6% year-over-year in January, down from 2.8% in December.
The month-over-month figure came in at 0.3%, slightly higher than the previous 0.2%, but still within market expectations.
The slowdown in core inflation has raised expectations that the Federal Reserve (Fed) may begin rate cuts later this year. However, fresh tariff threats from U.S. President Donald Trump continue to provide support for the U.S. dollar, limiting further downside. Trump confirmed that 25% tariffs on Canadian and Mexican imports will take effect on March 4, while also proposing an additional 10% levy on Chinese imports, citing concerns over China’s role in fentanyl exports to the U.S.
GBP/USD price dynamics (Jan 2025 - Feb 2025) Source: TradingView.
Bank of England’s policy stance remains cautious
The Bank of England (BoE) is expected to adopt a more moderate approach to rate cuts compared to other major central banks. While traders have priced in two BoE rate cuts for 2025, the European Central Bank (ECB) is expected to cut rates three times, and the Fed is projected to lower rates by 60 basis points.
A key factor supporting BoE’s cautious approach is the persistence of strong wage growth. The latest data showed that UK average earnings excluding bonuses rose by 5.9% in the three months ending December, the highest level since April 2024. BoE Deputy Governor Dave Ramsden stated that while wage growth is stronger than expected, the overall disinflationary process remains intact.
Meanwhile, the meeting between UK Prime Minister Keir Starmer and President Trump on Thursday ended without a deal. However, Trump expressed optimism, stating that there was a very good chance of a trade agreement, which could eliminate the need for tariffs.
Technical outlook: Key resistance and support levels
The GBP/USD pair is struggling to hold above the 38.2% Fibonacci retracement level at 1.2610. The 20-day Exponential Moving Average (EMA) near 1.2560 continues to provide strong support.The Relative Strength Index (RSI) has retreated into the 40-60 range, signaling that bullish momentum has temporarily stalled. On the downside, the February 11 low of 1.2333 serves as a key support level, while the 50% Fibonacci retracement at 1.2765 remains the primary resistance zone.
While the GBP/USD outlook remains stable, upcoming developments related to Trump’s tariff policies and the BoE’s next policy decision will likely influence the currency’s next move.
As previously discussed GBP/USD stabilizes as U.S. inflation cools and BoE maintains a cautious rate stance.
