Pound Sterling partially recovers after dovish BoE hold triggers losses

• The Pound Sterling bounces back against its major currency peers, recovering some of the previous day’s losses.
• A higher-than-expected number of BoE members supporting an interest rate cut on Thursday weighed on British currency.
• The US Dollar retraces as soft US labor market data supports dovish Fed bets.

The Pound Sterling (GBP) regains ground against its major currency peers on Friday after a sharp fall the previous day, which was driven by the Bank of England’s (BoE) signal that there is a high chance of an interest-rate cut in the near term.

In the monetary policy announcement on Thursday, the BoE unanimously decided to leave interest rates unchanged at 3.75%, with a 5-4 vote split. The BoE was widely expected to maintain the status quo, but the number of Monetary Policy Committee (MPC) members supporting keeping rates unchanged was lower than the seven expected by markets.

Regarding the monetary policy outlook, the BoE reiterated that the policy will remain on a “gradual downward path”, while expressing confidence that inflationary pressures will return to the 2% target “ahead of the schedule expected in November”. Governor Andrew Bailey refrained from setting a timeframe for the next interest-rate cut and declined to endorse 3.25% as a terminal rate, a level that neither restricts nor stimulates economic growth.

Still, markets quickly priced in a higher likelihood of a near-term cut. The Pound Sterling lost 0.8% on the day against the US Dollar (USD), with the GBP/USD pair touching a two-week low.

In Friday’s session, investors will pay close attention to BoE Chief Economist Huw Pill’s comments in a National MPC Agency briefing scheduled at 12:00 GMT for further details about the BoE’s interest-rate outlook. Pill was one of five MPC members who voted to leave interest rates unchanged on Thursday.

Daily Digest Market Movers: Pound Sterling rises against US Dollar, US NFP in spotlight

• The Pound Sterling trades 0.3% higher to near 1.3570 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair recovers after posting a fresh weekly low near 1.3500.
• A slight corrective move in the US Dollar after a week-long rally has also supported the pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is down 0.15% to near 97.80.
• The US Dollar has come under pressure as traders have raised bets supporting an interest rate cut by the Federal Reserve (Fed) at its Marchmonetary policy meeting. According to the CME FedWatch tool, the possibility of the Fed reducing interest rates next month by 25 basis points (bps) to 3.25%-3.50% has advanced to 22.7% from the 9.4% seen on Monday.
• Dovish Fed prospects have increased after the latest batch of United States (US) job market-related data showed continued weakness in the labor demand. The US JOLTS Job Openings report for December showed on Thursday that employers posted lower job vacancies – at 6.542 million against 6.928 million in November.
• ADP reported on Wednesday that the private sector created 22K jobs in January, less than the 37K added in December.
• For more cues on the current state of the US labor market, investors will focus on the Nonfarm Payrolls (NFP) data for January, which will be released on Wednesday.

Technical Analysis: GBP/USD aims to return above 20-day EMA

GBP/USD gains to near 1.3568 as of writing. The 20-day Exponential Moving Average (EMA) has softened to 1.3591 after a steady ascent, with price holding just beneath it and dampening immediate upside traction.

The 14-day Relative Strength Index (RSI) at 50 (neutral) confirms waning momentum from prior overbought readings.

The flattening 20-day EMA signals consolidation in the near term, though its elevated level still frames the upward trend bias. A decisive daily close back above 1.3591 could extend gains toward the February 4 high of 1.3733, while repeated rejection would keep the pair range-bound.

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