In the wake of the latest policy decisions made by the Bank of England, institutional investors are now bracing for a further weakening of the British pound. Fears regarding a slowdown in economic growth within the UK have been amplified, prompting major players in the investment field to reassess their positions concerning the pound. One clear example is the significant reduction of pound trades initiated by Baillie Gifford at the start of the year. According to sources, major investment firms such as Hartford Funds and Russell Investments have followed suit, shedding their holdings in the currency. RBC BlueBay Asset Management argues that, with market expectations indicating an imminent decrease in the UK's interest rates, there is ample room for further reduction from their already diminished positions. Shaniel Ramjee, a portfolio manager at Pictet, posits that amidst the current state of the UK’s financial and economic health, a demand for the pound seems far-fetched. In his view, economic vulnerabilities persist, necessitating further interest rate cuts from the Bank of England. Since the beginning of the year, he has minimized his pound exposure to the lowest level required for his portfolio.

The recent price adjustments underscore the urgency for Chancellor Rachel Reeves to fulfill her commitment to accelerate economic growth. This situation challenges the narrative built over the last two years, which suggested that UK interest rates were set to remain significantly higher than those of many other G7 nations. Adding to the conversation, the European Central Bank's chief economist, Philip Lane, made noteworthy comments regarding interest rate decisions. When discussing the criteria for determining the magnitude of rate cuts, Lane emphasized the importance of analyzing economic data without being overly fixated on the traditionally touted neutral rate. He indicated that as rates approach a level that no longer burdens economic growth, the discourse surrounding this theoretical threshold has begun to lose some relevance. Lane asserted that the concept of neutral rates becomes particularly useful only when inflation significantly surpasses the target level. He highlighted the necessity of a coherent narrative framework, particularly when inflation is far beyond the 2% goal, where monetary policy’s restrictive effect is crucial. This brings about an intensified debate within the Eurozone regarding the future trajectory of interest rates as inflation nears target, leading to questions about the extent of potential future cuts. Since June of last year, the European Central Bank has lowered the deposit rate five times, now standing at 2.75%, with market predictions indicating at least three more reductions this year.

Today, all eyes will be on several key data points, including the UK's preliminary year-on-year GDP figures for the fourth quarter and the Eurozone's Sentix Investor Confidence Index for February.

Turning to the dollar index, last Friday saw the index undergoing a robust upward trend in the forex market. Amid fierce tug-of-war between bulls and bears, the dollar index managed to reclaim the 108.00 mark, reaching a high not seen in the last three trading days, closing with steady trading around 108.30. The surging dollar was significantly bolstered by short covering; investors who had previously bet against the dollar rushed to close their short positions, resulting in an influx of funds that pushed the dollar index higher. Complicating the employment report data released during this period showed mixed results. While job numbers showed an increase, wage growth fell short of expectations, thereby reinforcing market speculation that the Federal Reserve would hold its ground for the time being. This unexpectedly strengthened the relative allure of dollar assets, lending robust support to the currency. Looking ahead, investors should remain vigilant regarding pressure around the 108.80 level while keeping in mind that support lies approximately at 107.80, with the market anticipated to oscillate between these critical points.

The performance of the Euro against the dollar last Friday drew significant attention, as the euro exhibited a tumultuous downward trend. In the face of intense market fluctuations, the euro barely clung to the 1.0300 mark while hitting lows not reached in three days. Ultimately, it closed around 1.0320. Factors influencing the market included a noticeable profit-taking phenomenon; previous gains made by the euro began to see a sell-off trigger while technical sell orders around the 1.0400 mark exerted further downward pressure. The rebound in the dollar index served as an additional catalyst for the euro's further decline, highlighting the inverse trading relationship between the two currencies. Furthermore, on the same day, disappointing economic figures from Germany—characterized by a drop in industrial output and a decrease in consumer confidence—added additional downward pressure on the euro. As investors move through the day, keen observation of pressure around the 1.0400 mark will be imperative, with support anticipated approximately at 1.0250.

As for the GBP/USD pair, last Friday saw the pound tread a rocky path downward, with a modest daily decline, ultimately trading near 1.2400. Both profit-taking measures and technical sell orders around the 1.2500 mark negatively impacted the exchange rate. The rebound in the dollar index also contributed to the downward momentum, compounded by the recent 25 basis point interest rate cut from the Bank of England that further influenced the exchange rate. Today, monitoring the resistance level near 1.2500 will be essential, with support pegged near 1.2300.