GBP/USD builds on expectation as BoE to maintain restrictive policy, trades near 1.2740

• GBP/USD moves in an upward direction as BoE is expected to maintain its current restrictive policy stance.
• Economists in a Reuters poll anticipated the BoE to maintain the policy rate at 5.25% in February’s meeting.
• The escalated geopolitical situation improves the risk aversion sentiment and increases the demand for US Dollar.

GBP/USD moves on an upward trajectory for the second successive session on Tuesday, inching higher to near 1.2740 during the Asian trading hours. The Bank of England (BoE) is expected to maintain its current restrictive policy stance in the upcoming meeting. This sentiment is supported by a Reuters poll in which economists anticipate the Bank of England to keep the policy rate unchanged at 5.25% during the February meeting. The expectations of a status quo in monetary policy contribute to the positive performance of the Pound Sterling (GBP), which in turn, underpins the GBP/USD pair.

The lackluster Retail Sales data for December from the United Kingdom (UK) on Friday likely contributed to the downward pressure on the British Pound (GBP). The substantial decline in UK Retail Sales signals deep economic challenges, coupled with heightened price pressures. The gloomy UK economy raises concerns about the potential for a technical recession. In this challenging economic context, policymakers at the Bank of England face a dilemma in determining the appropriate course of action.

Investors will be closely monitoring the preliminary UK S&P Global PMI data for January, set to be released on Wednesday. This data will provide further insights into the current state of economic activity in the UK and could influence market sentiment and the performance of the GBP/USD pair.

The US Dollar Index (DXY) declines to around 103.10. However, the demand for the US Dollar could be influenced by risk aversion sentiment, likely stemming from the heightened geopolitical situation in the Middle East. This has led investors to seek safety in the safe-haven USD, which in turn, undermines the GBP/USD pair. The release of the Richmond Fed Manufacturing Index for January later in the North American session will provide further insights into the state of the US economy. Traders will closely analyze this data for potential impacts on the US Dollar and broader economic trends.