GBP/USD holds in a tight range as thin data keeps trading subdued

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The British Pound (GBP) trades in a tight range against the US Dollar (USD) on Tuesday, with GBP/USD struggling to find direction as a thin economic calendar in both the United States (US) and the United Kingdom (UK) keeps price action subdued.

GBP/USD trades sideways as a light UK and US economic data calendar keeps markets range-bound.
The US Dollar holds near one-week highs after Kevin Warsh’s Fed nomination, but longer-term policy and fiscal risks continue to limit upside.
Attention turns to the Bank of England’s policy decision, with markets expecting rates to remain unchanged at 3.75%.

A steady US Dollar is capping upside attempts in GBP/USD. The Greenback staged a sharp rebound from four-year lows after markets welcomed US President Donald Trump’s nomination of former Federal Reserve (Fed) Governor Kevin Warsh as the next Fed Chair.

Warsh’s nomination has eased fears of aggressive rate cuts under political pressure, given his broadly hawkish policy stance.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading near one-week highs around 97.58.

However, structural headwinds for the US Dollar, including uncertainty surrounding US President Trump's disruptive trade agenda, repeated tariff threats and rising government debt, continue to weigh on the longer-term outlook, keeping GBP/USD tilted to the upside.

On the monetary policy front, recent US data has strengthened the view that the Fed can keep interest rates on hold for longer, even as markets still look for roughly two rate cuts later this year.

Speaking on Tuesday, Stephen Miran repeated his call for lower interest rates, saying the central bank needs to cut rates by about one percentage point this year.

Separately, Richmond Fed President Thomas Barkin said the US economy remains “remarkably resilient” and noted that the rate cuts delivered so far have helped support the labour market, while policymakers continue to work through the “last mile” of returning inflation to target.

Meanwhile, the Bureau of Labor Statistics (BLS) said on Monday that the January US jobs report, due on Friday, will be delayed because of the ongoing partial US government shutdown, leaving investors to rely on private-sector indicators, with the ADP Employment Change report scheduled for Wednesday.

In the United Kingdom, attention is firmly on the Bank of England (BoE) interest rate decision on Thursday. Markets widely expect the BoE to leave its policy rate unchanged at 3.75%, as underlying inflation pressure remains elevated.

That said, investors still see scope for rate cuts later this year, after policymakers signalled at their previous meeting that the scale and timing of further easing would depend on how the inflation outlook evolves, while stressing that any policy adjustment is likely to follow a gradual downward path.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

What is Quantitative Easing (QE) and how does it affect the Pound?

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.