GBP/USD posts modest gains around 1.2790 in Wednesday’s early Asian session.
Investors brace for Bailey's testimony and the US ISM Services Purchasing Managers Index (PMI) for February.
Rising expectation of more caution on easing from the BoE could help limit the GBP's losses.
The GBP/USD pair trades with mild gains to near 1.2790 during the early European trading hours on Wednesday. The US Dollar (USD) hovered near a three-month low amid concerns over slowing US economic growth and the impact of tariffs.
"Fears about weaker U.S. and global economic activity are manifesting in the markets, with cyclicals driving the sell-off," said Kyle Rodda, senior financial markets analyst at capital.com. Additionally, Trump's 25% levies on Mexican and Canadian imports took effect on Tuesday, alongside a hike in Chinese duties to 20%
Investors will take more cues from the US ISM Services Purchasing Managers Index (PMI) for February, which is due later on Wednesday. In case of a weaker-than-expected outcome, this could drag the Greenback lower against the Pound Sterling (GBP).
The Bank of England (BoE) governor Andrew Bailey thinks a renewed bout of inflation is nothing to worry about. Meanwhile, BoE Deputy Governor Dave Ramsden said that the UK central bank should keep a “careful and gradual” approach to monetary policy amid uncertainty over the labor market and global trade.
The expectation of a gradual monetary expansion approach is supported by elevated United Kingdom (UK) wage growth, which could keep inflationary pressures persistently higher.
"The February BoE cut was accompanied by a dovish vote split, but data has since pointed to more caution on easing. Fourth-quarter growth, December wages and January CPI all came in stronger than expected, and the risks are that we could see some hawkish adjustment in Bailey’s stance,” said ING’s FX analyst Francesco Pesole.
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