Pound Sterling strengthens against US Dollar as US Bessent endorses lower interest rates

• The Pound Sterling gains sharply to near 1.2750 against the US Dollar as traders have raised Fed dovish bets for the June meeting.
• US President Trump has imposed 25% tariffs on Canada and Mexico and an additional 10% on China.
• The BoE is expected to follow a gradual policy-easing cycle as the UK inflation is set to remain higher.

The Pound Sterling (GBP) posts a fresh two-and-a-half month high around 1.2750 against the US Dollar (USD) in Tuesday’s North American session. The GBP/USD pair strengthens as the US Dollar extends its downside after United States (US) Treasury Secretary Scott Bessent said that they are set on bringing interest rates down, Reuters reported. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides below 106.00. 

US Treasury Bessent's dovish comments have come at a time when traders have raised Federal Reserve (Fed) bets significantly due to a slew of weak US economic data. An expected slowdown in the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for January, a sharp decline in Consumer Confidence for February – the first decline in the Personal Spending data for January in two years – and weak ISM Manufacturing PMI data for February have contributed to market expectations that the Fed could resume the monetary expansion cycle in June.

Traders have raised bets supporting the Fed to resume the policy-easing cycle in the June meeting, which was paused in January. The likelihood for the central bank to reduce interest rates in June has increased to 86.9% from 69% recorded a week ago, according to the CME FedWatch tool.

On tariffs over China. Scott Bessent said China's business model is to "export, and that is unacceptable." Bessent said he is confident that Chinese manufacturers will "eat the tariffs".

Going forward, investors will focus on the US ADP Employment Change, US ISM Services PMI, and the US Nonfarm Payrolls (NFP) data for February. All of them will be released during this week and are likely to influence market expectations for the Fed’s monetary policy outlook.

Daily digest market movers: Pound Sterling remains mixed while traders expect moderate BoE policy-easing cycle

• The Pound Sterling exhibits a mixed performance across the globe, with investors seeking further development in Ukraine’s peace plan. Over the weekend, pan-European leaders, including Ukrainian President Volodymyr Zelenskyy, agreed to structure a draft for ending the three-year-long war in Ukraine in a high-stakes summit in London.
• On a broader note, the outlook of the British currency remains firm as investors expect the Bank of England (BoE) to follow a gradual monetary expansion approach. These expectations have been bolstered by elevated United Kingdom (UK) wage growth, which could keep inflationary pressures persistently higher.
• Additionally, British Retail Consortium (BRC) Chief Executive, Helen Dickinson, has projected that inflation could rise further as retailers face a 7 billion pound ($8.88 billion) rise in annual costs this year due to a nearly 7% rise in the minimum wage, packaging levies and an increase in payroll taxes announced in UK Chancellor of the Exchequer Rachel Reeves’ Autumn budget, Reuters report. 
• On the global front, US President Donald Trump’s tariff agenda is expected to keep investors on their toes. 25% tariffs on Canada and Mexico and an additional 10% levies on China have come into effect on Tuesday, signaling that fears of a global trade war have become real now. In retaliation, China has also slapped tariffs on major agricultural imports. 

Technical Analysis: Pound Sterling jumps to near 1.2750

The Pound Sterling demonstrates strength near 1.2750 against the US Dollar on Tuesday. The GBP/USD pair recovered strongly on Monday after a mean-reversion move to the 20-day Exponential Moving Average (EMA) near 1.2580.

The 14-day Relative Strength Index (RSI) climbs above 60.00. A fresh bullish momentum would come into action if the RSI sustains above that level.

Looking down, the February 11 low of 1.2333 will act as a key support zone for the pair. On the upside, the 61% Fibonacci retracement level at 1.2924 will act as a key resistance zone.