POUND STERLING EXTENDS LOSSES ON RISK-OFF MARKET MOOD

• The Pound Sterling faces selling pressure as the appeal for risk-sensitive assets fades.
• The UK economy grew as expected in January but fears of recession remain high.
• Going forward, investors will shift focus to the UK Inflation data for fresh guidance.

The Pound Sterling (GBP) declines in Friday’s European session as dismal market sentiment dampens the appeal of risk-sensitive assets. The GBP/USD pair refreshes a weekly low near 1.2730 as the US Dollar strengthens, driven by increasing expectations that the Federal Reserve (Fed) could keep interest rates unchanged in the range of 5.25%-5.50% in the June policy meeting.

The Cable is under pressure due to expectations that the Fed's first rate cut, a widely expected move for markets after high interest rates for more than two years, could be pushed back further down the summer. This would align the time frame of the Fed’s rate cut decision with that of the Bank of England (BoE), which is expected to start reducing interest rates from the August policy meeting.

Uncertainty over the United Kingdom's economic outlook may not allow BoE policymakers to keep interest rates higher for longer. The UK economy entered a technical recession in the second half of 2023, and despite January’s slight uptick, there is no solid indication that the worst is over for them.