GBP/USD impacted by stronger US Dollar, higher T-yields

In the middle of the North American session, the Pound Sterling was negatively impacted by the strong US Dollar and high US Treasury bond yields, which supported the US dollar. The GBP/USD pair declined by more than 0.40%.

As corporations release their fourth-quarter earnings from the previous year, US markets are trading neutral. While the Services marginally increased from 0 to 4, the Richmond Fed Composite and Manufacturing Index continued to decline from -11 to -15 in January. The UK’s Office for National Statistics (ONS) said that the country’s December budget deficit, which was £-7.77 billion, was less than it was the previous year.

This could open the door for a tax cut, as expressed by Chancellor Hunt and UK Prime Minister Rishu Sunak in the spring budget to be presented on March 6. The Bank of England is not expected to move the needle in February, but investors see Governor Bailey and policymakers slashing rates as early as May, with three additional cuts, which would drag the Bank Rate from 5.25% to 4.25%.

On the US front, the Federal Reserve is expected to ease policy in June, with most analysts estimating the Federal Funds Rate (FFR) would be adjusted from 5.25%-5.50% to 4.25%-4.50%.