- 1.3000 south, Wednesday GBP/USD mediocre.
- UK data is overwhelming again this week as it is focused on US data.
- US CPI inflation fell in February, helping to cool inflation.
The GBP/USD currency pair remained near recent highs on Wednesday, stabilizing around the crucial 1.3000 level. This comes as financial markets digest recent US Consumer Price Index (CPI) data, which showed inflation cooling more than expected in February. Traders are now turning their focus to upcoming US Producer Price Index (PPI) data, set for release on Thursday, followed by key consumer sentiment and inflation expectations reports due on Friday.
US Implements 25% Tariffs on Steel and Aluminum Imports
The US government has officially imposed a 25% tariff on all steel and aluminum imports, signaling a critical phase in US trade policy. This move aligns with the broader ambitions of former President Donald Trump, who had long advocated for a more protectionist stance.
A recent trade dispute between the US and Canada saw tensions escalate before eventually de-escalating. Initially, Trump had threatened to double metal tariffs on Canadian imports just before the new tariffs were set to be enforced. However, after negotiations, the two countries reached a settlement, with the US maintaining a standard 25% tariff while Canada prepares to impose its own retaliatory tariffs on select goods.
US Inflation Declines Sharply in February
The latest US Consumer Price Index (CPI) report revealed a sharper-than-expected slowdown in inflation for February. Headline CPI fell to 0.2% month-over-month and 2.8% year-over-year, dipping more quickly than market forecasts. While inflation remains above the Federal Reserve’s 2% target, this reading has boosted optimism about potential interest rate adjustments.
According to the CME FedWatch Tool, rate markets now indicate an increasing probability of a Federal Reserve rate cut in June, compared to previous expectations of a July cut.
Inflation Trends and Market Outlook
Over the past four years, inflation levels have fluctuated, with transitory inflation concerns first emerging in 2021. Since mid-2023, US inflation has remained relatively steady, aside from a temporary dip in Q3 2024.
Despite February’s cooling CPI, certain inflationary pressures persist. Energy prices showed mixed trends, with gasoline and fuel oil prices dropping by 3.1% and 5.1%, respectively, while natural gas prices surged by 6%. Shelter inflation remains a concern, rising 4.2% year-over-year, and while new vehicle prices saw a slight 0.3% decrease, food prices climbed 2.6% compared to last year.
These mixed signals suggest that policymakers may face challenges in achieving a sustainable reduction in inflationary pressures while balancing economic growth.
GBP/USD Outlook
The GBP/USD pair is on track for its second consecutive week of gains, nearing an 18-week high around 1.2950. However, the 1.3000 resistance level could cap further upside, as this key threshold previously acted as a consolidation zone in late 2024.
Despite strong buying interest, technical indicators have been overbought since January, signaling the possibility of a reversal in the near term.
