Pound Sterling flattens against US Dollar as yearly US core PCE Inflation cools down.

The Pound Sterling turns flat against the US Dollar as US core PCE inflation cools on year in January.
US President Trump proposes an additional 10% tariffs on China.
The BoE is expected to follow a moderate policy-easing cycle.

The Pound Sterling (GBP) trades flat to near 1.2600 against the US Dollar (USD) in Friday’s North American session. The GBP/USD pair flattens as the US Dollar gives up intraday gains due to an expected slowdown in the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for January. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Thursday’s gains around 107.40.

The report showed that the core PCE inflation – which excludes volatile food and energy prices – decelerated to 2.6% year-over-year, as expected, from 2.8% in December. Month-on-month inflation data rose by 0.3%, expectedly, faster than the former reading of 0.2%.

An expected cooldown in the US core PCE inflation, which is the Federal Reserve’s (Fed) preferred inflation gauge, is expected to force trades to pare bets supporting the central bank to leave interest rates in the current range of 4.25%-4.50% for longer. Such a scenario would be unfavorable for the US Dollar’s outlook.

However, fresh tariff threats by US President Donald Trump would continue to restrict the downside in the Greenback. On Thursday, Trump announced more levies on China and provided more clarification on the timeline for 25% import duties on Canada and Mexico and reciprocal tariffs.

In his tweet at Truth.Social, Trump said that 25% tariffs on Canada and Mexico will come into effect on March 4. His tweet confirmed that he is not providing an additional month-long extension to his North American allies as “drugs are still pouring” into the economy. Trump announced an additional 10% levy on China, arguing that drugs entering the US are in the form of fentanyl, which is made in and supplied by China. He added that reciprocal tariffs could come into full force and effect on April 2. Investors see Trump’s fresh tariff threats as a critical escalation in the global trade war that could lead to an economic slowdown across the globe.

Daily digest market movers: Pound Sterling remains cautious

The Pound Sterling trades with caution against its major peers on Friday despite investors expecting the Bank of England’s (BoE) monetary easing cycle to be more moderate this year than other central bankers from major economies. Traders have fully priced in two interest rate cuts by the BoE. On the contrary, the European Central Bank (ECB) is expected to cut interest rates thrice and the Federal Reserve (Fed) is anticipated to reduce them by 60 basis points (bps).
Market participants have been expecting a slower BoE policy easing cycle due to strong wage growth. Average Earnings Excluding bonuses in three months ending December accelerated to 5.9%, the highest level seen since April 2024.
BoE Deputy Governor Dave Ramsden also said in his speech at Stellenbosch University in South Africa during early European trading hours on Friday that wage growth is “stronger than he expected”. However, Ramsden remained confident that the “core disinflationary process remains intact”. On the global front, he said it is difficult to ascertain whether the impact of US President Donald Trump’s tariffs will be “inflationary or deflationary” for the economy.
Meanwhile, the meeting between United Kingdom (UK) Prime Minister Keir Starmer and the US President on Thursday concluded without a deal. However, Trump said there was “a very good chance” of a trade deal “where tariffs wouldn’t be necessary.” Trump added that such a deal could be made “pretty quickly,” BBC reported.