GBP/USD edges lower to 1.2660 amid a steady US Dollar, hawkish Fed officials

• GBP/USD snaps its winning streak amid a stable US Dollar on Monday.
• MUFG’s economists expect the BoE to maintain a patient stance on the interest rate trajectory.
• US Dollar maintains its position after hawkish remarks from Fed officials last week.

GBP/USD breaks its four-day winning streak and trades slightly lower around 1.2660 during the Asian session on Monday. The US Dollar (USD) maintains its strength on hawkish comments from Federal Reserve’s (Fed) officials, which in turn, undermines the GBP/USD pair. Additionally, the lower February consumer confidence data from the United Kingdom (UK) weakens downward pressure on the Pound Sterling (GBP).

On Friday, the GfK Consumer Confidence index for the UK came in at -21, falling short of market expectations of -18 reading and below the previous reading of -19, indicating a contraction in consumer confidence in the UK economic activity for February. However, the British Pound (GBP) received some upward support from the mixed Thursday’s Purchasing Managers Index (PMI) data for February from the United Kingdom.

Economists at MUFG Bank have analyzed the outlook for the Pound Sterling (GBP). They noted that the recent UK PMI data suggests an improving outlook and the technical recession experienced in the second half of last year appears to be coming to an end. The improvement in global risk sentiment will likely allow the Bank of England (BoE) to maintain a patient stance, similar to other central banks. Furthermore, there remains a possibility of inflation reaching the 2% target in April.

The US Dollar Index (DXY) holds steady after recording gains in the previous two sessions. Despite subdued US Treasury yields, the DXY maintains its position around 104.00. By the press time, the 2-year and 10-year yields on US Treasury notes stand at 4.67% and 4.23%, respectively.

President of the New York Federal Reserve, John C. Williams, hinted in an interview that rate cuts could be considered later this year, but stressed that they would only be implemented if deemed necessary. Additionally, Federal Reserve Governor Christopher J. Waller has also suggested that the Federal Reserve should delay any rate cuts for a few more months to evaluate whether January's high inflation report was an aberration.