Pound Sterling flattens against USD as investors seek fresh cues on Trump's tariff policies

• The Pound Sterling stabilizes around 1.2600 against the US Dollar as investors wait for more developments in President Trump's international policies.
• The FOMC minutes showed on Wednesday that officials are worried about deepening upside risks to inflation.
• Investors await the UK Retail Sales report for January and the preliminary S&P Global UK/US PMI data for February, scheduled for Friday.

The Pound Sterling (GBP) trades in a tight range around 1.2600 against the US Dollar (USD) in Thursday's European session. The GBP/USD pair consolidates as investors seek more development in United States (US) President Donald Trump's tariff agenda and US-Russia peace talks on Ukraine. 

On Wednesday, Donald Trump announced that a trade deal with China is "possible". His comments were optimistic even though he announced 10% tariffs on all imports from the Asian country earlier this month. On Tuesday, Trump also announced that he is planning to impose 25% tariffs on imports of foreign cars, pharmaceuticals and semiconductors.

On the geopolitical front, President Trump has confirmed that he will hold more talks on a Russia-Ukraine peace deal after discussing the issue with Russian diplomats in Saudi Arabia without including Ukraine and Europe. However, Ukraine has said that it won't agree to a deal that would be made on its behalf. 

Meanwhile, the outlook for the US Dollar seems upbeat as Federal Open Market Committee (FOMC) minutes for the January meeting showed on Wednesday that officials are expected to keep interest rates in the current range of 4.25%-4.50% for longer. 

Fed policymakers were more concerned about the upside risks to inflation due to Trump's potential tariff policies than risks to the labor market. The FOMC Minutes also indicated that business owners plan to pass on the impact of higher input costs to consumers. Even though tariffs on critical imports would boost local production, those products won't be competitive in terms of manufacturing cost, given the higher United States (US) labor costs compared to those of its trading partners.

Such a scenario will boost inflationary pressures and prevent Federal Reserve (Fed) officials from continuing the monetary expansion cycle sooner, which started in September 2024.

Daily digest market movers: Pound Sterling continues to underperform

• The Pound Sterling remains fragile against its major peers as investors are concerned over the United Kingdom's (UK) economic outlook. Bank of England (BoE) Governor Andrew Bailey warned this week that the economic growth is expected to remain sluggish and sees the labor market softening.
• The British currency attempted to gain ground after the release of a hotter-than-expected UK Consumer Price Index (CPI) report for January on Wednesday but failed to do so. Governor Bailey had already cautioned that a short-term uptick in inflation is expected due to volatile energy prices, but that won't be persistent. 
• Year-on-year headline CPI rose by 3%, faster than estimates of 2.8% and the December reading of 2.5%. In the same period, the core CPI - which excludes volatile components of food, energy, alcohol, and tobacco - grew by 3.7%, as expected, faster than the former reading of 3.2%.
• Though the acceleration in inflationary pressures should be temporary, it will not allow the BoE to ease monetary policy further. The central bank reduced its borrowing rates by 25 basis points (bps) to 4.5% in its policy meeting, which took place on February 6 but guided a cautious policy easing outlook.
• Going forward, investors will focus on the UK Retail Sales data for January, and the flash S&P Global UK/US Purchasing Managers Index (PMI) report for February, which will be released on Friday.

Technical Analysis: Pound Sterling struggles around 38.2% Fibo retracement at 1.2620

The Pound Sterling wobbles near 1.2600 against the US Dollar in European trading hours on Thursday. The GBP/USD pair faces pressure while attempting to break above the 38.2% Fibonacci retracement from the end-September high to the mid-January low downtrend, which coincides with the 100-day Exponential Moving Average (EMA), around 1.2620.

The 14-day Relative Strength Index (RSI) struggles to hold above 60.00. The bullish momentum would fizzle out if the RSI (14) fails to sustain above that level.

Looking down, the February 3 low of 1.2250 will act as a key support zone for the pair. On the upside, the 50% Fibonacci retracement at 1.2767 will act as a key resistance zone.