The Pound Sterling (GBP) trades cautiously as the UK prepares for the Spring Statement from Chancellor Rachel Reeves, set to be unveiled on Wednesday. Reeves has pledged to avoid new taxes and maintain fiscal rules, creating uncertainty about promoting economic growth.
Public services are expected to be self-sufficient, relying on foreign financing only for investments. No further tax increases are anticipated, following backlash over previous hikes in National Insurance contributions. This could lead to reduced consumer inflation expectations and potential interest rate cuts from the Bank of England.
Uk Inflation Data And Market Expectations
On Wednesday, key UK Consumer Price Index (CPI) data will be released, with expectations of inflation declining to 2.9% year-over-year, down from 3% in January. Core CPI is projected to grow at 3.6%, slightly lower than the previous 3.7%.
The GBP has shown strength against the US Dollar, close to 1.2950. Gains are noted despite the US Dollar’s earlier advances driven by positive S&P Global Purchasing Managers Index data, which reported a Services PMI of 54.3, surpassing estimates.
The Pound holds a key Fibonacci retracement level near 1.2930. With the 14-day Relative Strength Index cooling near 60, bullish momentum may result if this level is maintained. Key support levels are identified at 1.2770 and 1.2615, while resistance is at the October 15 high of 1.3100.
With Reeves set to announce the Spring Statement on Wednesday, markets will be weighing expectations against reality. She has so far committed to keeping fiscal rules intact and avoiding fresh tax hikes, but that leaves a narrow path for boosting economic growth. If the government insists that public services must sustain themselves without additional borrowing—except for investment purposes—then spending may remain constrained. Markets will need to assess whether this keeps inflation expectations anchored, which could, in turn, allow the Bank of England to act on interest rates.
On that same day, inflation data arrives. The Consumer Price Index is expected to have slowed slightly to 2.9% on an annual basis, down from 3% in January. If the reading comes in as expected, or even softer, it reinforces bets that the central bank will have room to reduce rates later in the year. Core inflation, which strips out food and energy, is also projected to dip marginally to 3.6%, offering more insight into underlying price pressures.
Pound Sterling And Us Dollar Outlook
The Pound’s recent performance against the US Dollar suggests resilience in the face of market uncertainty. The exchange rate is pressing close to 1.2950, defying earlier strength in the US currency that followed upbeat economic data. US services sector activity came in stronger than expected, with the headline PMI climbing to 54.3. Despite this, the British currency has held its ground, helped in part by firm technical levels.
A key Fibonacci retracement zone sits around 1.2930, and as long as the price stays above it, upward momentum could persist. Momentum indicators suggest that bullish conditions remain intact but not overstretched, with the 14-day Relative Strength Index hovering near 60. The first major downside test sits lower at 1.2770, followed by further backing around 1.2615. On the topside, the October 15 peak of 1.3100 stands as the next hurdle for buyers.
In the coming sessions, traders will be watching for any shift in expectations around monetary policy. If inflation slows more than forecast, it may fuel speculation of rate cuts arriving sooner. On the other hand, if price pressures remain stubborn, the Bank of England could find itself needing to hold firm for longer. Bond markets, currency traders, and policymakers will all be reacting in real time.
