Pound Sterling refreshes two-week high against USD as Trump endorses immediate rate cuts

• The Pound Sterling posts a fresh two-week high above 1.2400 against the US Dollar after US President Trump supported immediate interest rate cuts from the Fed.
• The Fed is widely anticipated to keep interest rates steady on Wednesday.
• Investors await the preliminary UK/US PMI data for January.

The Pound Sterling (GBP) jumps to near 1.2400 against the US Dollar (USD) on Friday. The GBP/USD gains as the US Dollar is onset to end the week with the highest losses in almost two months. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near 107.60, the lowest level in over a month after United States (US) President Donald Trump signaled the need for immediate interest rate cuts by the Federal Reserve (Fed) in his commentary at the World Economic Forum (WEF) on Thursday.

"With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," Trump said. His comments have come just a few days before the announcement of the Fed’s first monetary policy meeting on January 29, in which it is certain to announce a pause in the policy-easing cycle and keep interest rates unchanged in the range of 4.25%-4.50%, according to the CME FedWatch tool.

Trump’s call for reducing interest rates immediately is unlikely to impact the Fed, an independent body dedicated to achieving its agenda of maintaining full employment with price stability.

In Friday’s session, the US Dollar will be influenced by the preliminary S&P Global PMI data for January, which will be published at 14:45GMT. The PMI data is expected to show that overall US private business activity remained almost steady in the month. 

Daily digest market movers: Pound Sterling outperforms US Dollar

• The Pound Sterling performs broadly sideways against its major peers, except the US Dollar, ahead of the preliminary United Kingdom (UK) S&P Global/CIPS Purchasing Managers Index (PMI) data for January, which will be published at 09:30 GMT. Investors will pay close attention to the private business activity data as they are worried about the UK economic outlook due to tight fiscal rules set by Chancellor of the Exchequer Rachel Reeves in the Autumn budget.
• The agency is expected to report that the Composite PMI dropped to 50.0 from 50.4 in December, suggesting that overall private business activity expanded but at a slower pace. The Composite PMI is set to rise moderately as manufacturing sector activity continues to contract and the demand in the service sector expands at a slower pace.
• Soft PMI numbers would boost market expectations that the Bank of England (BoE) will reduce interest rates by 25 basis points (bps) to 4.5% in February’s monetary policy meeting. However, strong numbers are unlikely to diminish these expectations, as dovish bets have been fuelled by soft inflation and employment data, and weak household spending.
• On the fiscal front, Rachel Reeves said in an interview with the Wall Street Journal (WSJ) at the sidelines of the World Economic Forum in Davos that she is prepared to announce new measures in A budget update on March 26 to ensure meet fiscal rules. Reeves announced in October that the government will rely on foreign financing only for investment.

Technical Analysis: Pound Sterling rises to near 1.2400

The Pound Sterling climbs to near 1.2400 against the US Dollar on Friday. The GBP/USD pair gains after breaking above the 20-day Exponential Moving Average (EMA), which trades around 1.2363. 

The 14-day Relative Strength Index (RSI) rebounds to near 50.00 from the 20.00-40.00 range, suggesting that the bearish momentum has ended, at least for now.

Looking down, the January 13 low of 1.2100 and the October 2023 low of 1.2050 will act as key support zones. On the upside, the 50-day EMA near 1.2515 will act as key resistance.