• Pound Sterling witnesses a significant demand as the BoE is expected to keep the restrictive policy longer.
• A hawkish interest-rate outlook has deepened UK recession fears.
• The US Dollar remains on the backfoot ahead of the US NFP data.

The Pound Sterling (GBP) prints a fresh weekly high in the early European session on Friday as the Bank of England (BoE) is expected to start reducing interest rates after the Federal Reserve (Fed) and the European Central Bank (ECB), and the risk-appetite of the market participants has improved. 

Recent monetary policy statements from Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, and Bank of England  Governor Andrew Bailey indicated that the first two were more explicit about rate cuts. The Fed has already guided three rate cuts this year, and ECB’s Lagarde sees the central bank commencing the rate-reduction process in late summer. 

Like Jerome Powell, Andrew Bailey avoided speculation on rate cuts and warned that price pressures could pick up again in the second half of this year. The BoE chose to tame high price pressures over facing-off deepening recession fears. The United Kingdom economy witnessed a decline in growth of 0.1% in the third quarter of 2023, and higher interest rates are expected to continue to place barriers to economic growth.

The GBP/USD pair clings to gains but could face volatility ahead as the United States Bureau of Labor Statistics (BLS) labor report – the Nonfarm Payrolls (NFP) release for January. Upbeat labor market data would trim hopes of a rate cut by the Fed in May