Pound Sterling witnesses a significant demand as the BoE is expected to keep the restrictive policy longer.

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• Pound Sterling witnesses a significant demand as the BoE is expected to keep the restrictive policy longer.
• A hawkish interest-rate outlook has deepened UK recession fears.
• The US Dollar remains on the backfoot ahead of the US NFP data.

The Pound Sterling (GBP) prints a fresh weekly high in the early European session on Friday as the Bank of England (BoE) is expected to start reducing interest rates after the Federal Reserve (Fed) and the European Central Bank (ECB), and the risk-appetite of the market participants has improved.

Recent monetary policy statements from Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, and Bank of England Governor Andrew Bailey indicated that the first two were more explicit about rate cuts. The Fed has already guided three rate cuts this year, and ECB’s Lagarde sees the central bank commencing the rate-reduction process in late summer.

Like Jerome Powell, Andrew Bailey avoided speculation on rate cuts and warned that price pressures could pick up again in the second half of this year. The BoE chose to tame high price pressures over facing-off deepening recession fears. The United Kingdom economy witnessed a decline in growth of 0.1% in the third quarter of 2023, and higher interest rates are expected to continue to place barriers to economic growth.

The GBP/USD pair clings to gains but could face volatility ahead as the United States Bureau of Labor Statistics (BLS) labor report – the Nonfarm Payrolls (NFP) release for January. Upbeat labor market data would trim hopes of a rate cut by the Fed in May.

Pound Sterling seems set to extend its rally towards the round-level resistance of 1.2800, supported by multiple tailwinds. The GBP/USD pair attempts a breakout of the Descending Triangle chart pattern formed on a daily time frame. The downward-sloping trendline of the aforementioned chart pattern is placed from 28 December 2023 high at 1.2827 while the horizontal support is plotted from 21 December 2023 low at 1.2612. A decisive breakout will result in wider ticks and high volume.

The 14-period Relative Strength Index (RSI) is approaching the 60.00 hurdle. If the RSI (14) manages to sustain above the aforementioned hurdle, it will reflect a bullish turn in market sentiment.

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