Pound Sterling holds onto gains against US Dollar amid concerns over US economic outlook

• The Pound Sterling grips gains above 1.2900 against the US Dollar as investors expect Trump's policies could slow down the US growth momentum.
• Fed's Powell reiterated the central bank needs more clarity before adjusting the monetary policy.
• BoE's Mann argues against the gradual and cautionary monetary policy easing approach.

The Pound Sterling (GBP) clings to gains slightly above 1.2900 against the US Dollar (USD) in Monday's European session. The GBP/USD pair strengthens as the US Dollar struggles to gain ground amid growing concerns over the United States (US) economic outlook. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades cautiously near the four-month low of 103.50.

Market participants have become increasingly worried over US economic prospects after comments from US President Donald Trump on Friday indicated that his "American First" policies could lead to economic turbulence in the near term. 

US President Trump refrained from guiding the impact of his policies on the economy but said in the interview with Fox News that there is a "period of transition", because what we are doing is very "big". His comments came after being asked whether his policies could lead to a recession in the economy. 

Donald Trump reiterated that reciprocal tariffs will be announced on April 2. Last week, Trump imposed 25% tariffs on imports from Canada and Mexico but exempted many products that come under the purview of the United States-Mexico-Canada Agreement (USMCA) for a month. He also increased surcharges on Chinese imports to 20% by imposing an additional 10%.

Market experts continue to believe that Trump's tariff policies would be inflationary for the economy, but they have changed their perception of its impact on the economic outlook. At one point when Trump's agenda was expected to accelerate economic expansion, it is now anticipated to fracture the economy. This has led to global brokerages revising their growth forecasts for the US economy. Goldman Sachs has downgraded its Q4 2025 Gross Domestic Product (GDP) growth forecast to 1.7%, from 2.2% previously anticipated, and raised its 12-month recession probability to 20% from 15%.

Investors also expect the Federal Reserve (Fed) would be forced to resume the policy-easing cycle as early as June. However, Fed Chair Jerome Powell reiterated in an economic forum at the University of Chicago Booth School on Friday that the interest rate policy is in "good shape" and the central bank wants clarity on Trump's policies before making any monetary policy adjustment.

Daily digest market movers: Pound Sterling trades lower against its peers

• The Pound Sterling underperforms its peers at the start of the week as Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann rebutted the need for a "gradual and cautious" monetary policy easing approach, as guided by a majority of BoE officials in the February monetary policy meeting and testimony before Parliament's treasury committee on Wednesday, due to deepening economic volatility across the globe in her speech on Thursday.
• Mann argued against the moderate monetary expansion approach amid significant volatility in global markets. She also said that the founding premise for a gradualist approach to monetary policy is "no longer valid" due to "substantial volatility" coming from financial markets, especially from "cross-border spillovers".
• A day before Mann's speech, four BoE officials, including Governor Andrew Bailey, endorsed a gradual path for "removing monetary policy restrictiveness" as the inflation persistence is less likely to fade "on its own accord".
• It is worth noting that Catherine Mann was one of two BoE officials who voted for a larger-than-usual rate cut of 50 basis points (bps) in the interest rate decision in February.
• This week, investors will keenly focus on the US JOLTS Job Openings and United Kingdom (UK) monthly GDP data for January, and the US Consumer Price Index (CPI) data for February, which will influence market speculation for the Fed and the BoE's monetary policy outlook. At the moment, traders expect the BoE to cut interest rates two times more this year.

Technical Analysis: Pound Sterling wobbles around 61.8% Fibo retracement at 1.2930

The Pound Sterling strives to break above the 61.8% Fibonacci retracement plotted from the late September high to mid-January low around 1.2930 on Friday. The long-term outlook of the GBP/USD pair has turned bullish as it holds above the 200-day Exponential Moving Average (EMA), which is around 1.2690.

The 14-day Relative Strength Index (RSI) climbs above 70.00, suggesting a strong bullish momentum.

Looking down, the 50% Fibo retracement at 1.2767 and the 38.2% Fibo retracement at 1.2608 will act as key support zones for the pair. On the upside, the psychological 1.3000 level will act as a key resistance zone.