Market Data 
- The Pound Sterling rises to near 1.2850 against the US Dollar as investors expect the US-China trade war to lead the US to a recession.
- US President Trump increased reciprocal tariffs on China to 104% against Beijing’s retaliation.
- Deutsche Bank expects the BoE to cut interest rates by 50 bps in May.
The Pound Sterling (GBP) extends the previous day’s recovery to near 1.2850 against the US Dollar (USD) in Wednesday’s European session. The GBP/USD pair advances as the US Dollar continues to face selling pressure amid firming expectations that the United States (US) could enter a recession this year. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plummets to near 102.00.
A fresh escalation in the trade war between the US and China has prompted risks of a recession in the US. On Tuesday, US President Donald Trump signed an order to increase tariffs on China to 104%, following Beijing’s retaliation on his reciprocal tariffs. Trump also blamed China for currency manipulation to offset the impact of higher duties.
Last week, China increased the levy on imports from the US by 34% in retaliation to similar reciprocal tariffs imposed by Trump on the Liberation Day.
Additionally, accelerating Federal Reserve (Fed) dovish bets due to increasing risks of a US recession have also weighed on the US Dollar. According to a CME FedWatch tool, the central bank’s probability of cutting interest rates in May has increased to 52.5% from 10.6% recorded a week ago.
For more cues on the monetary policy outlook, investors will focus on the Federal Open Market Committee (FOMC) minutes of the March policy meeting, which will be published at 19:00 GMT. In the policy meeting, the Fed left interest rates steady in the range of 4.25%-4.50%, and officials collectively maintained their guidance for two interest rate cuts this year.
This week, investors will also focus on the US Consumer Price Index (CPI) data for March, which will be released on Thursday.
Daily digest market movers: Pound Sterling is expected to face pressure from accelerating BoE dovish bets
- The Pound Sterling shows a volatile performance against its major peers on Wednesday. Investors brace for more volatility ahead as protectionist policies by US President Trump have stemmed the risks of a global recession. Analysts at JPMorgan believe the rapid escalation with US tariffs on China is disruptive enough to push the global economy into a recession.
- China is known as the world’s manufacturing hub, given its competitive advantage in labor cost and supportive government policies. Financial market participants worry that Chinese firms will look for other markets to sell their products if its trade war with the US brews further. Such a scenario will be unfavorable for Europe as it seems incapable of battling a price war against China.
- Additionally, traders have raised Bank of England (BoE) dovish bets amid fears that Trump’s tariff policy could send shockwaves through the United Kingdom (UK) economy. Analysts at Deutsche Bank expect that the BoE may consider a more “forceful” response to current economic conditions and deliver a larger-than-usual interest rate cut of 50 basis points (bps) in the May policy meeting. The central bank identified a substantial decline in survey activity indicators, unwarranted tightening of financial conditions, and fears of labor market slowdown as key reasons behind the BoE’s ultra-dovish decision.
- This week, investors will focus on the monthly Gross Domestic Product (GDP) and the factory data for February, which will be released on Friday. The UK economy is expected to have grown by 0.1% after contracting at a similar pace in January.
Technical Analysis: Pound Sterling jumps above 1.2800
The Pound Sterling rises above 1.2800 against the US Dollar on Wednesday but struggles to reclaim the 20-day Exponential Moving Average (EMA), which trades around 1.2877.
The 14-day Relative Strength Index (RSI) rebounds after falling to near 40.00. A fresh bearish momentum could be triggered if the RSI fails to hold the 40.00 level.
Looking down, the 38.2% Fibonacci retracement plotted from late September high to mid-January low near 1.2610 will act as a key support zone for the pair. On the upside, the psychological figure of 1.3000 will act as a key resistance zone.
