GBP/USD experienced a modest recovery from the 200-day Exponential Moving Average (EMA) around 1.2700 on Tuesday, amidst market apprehension regarding impending US tariffs. Risk sentiment is showing signs of tentative improvement, although underlying concerns persist. The pair halted a two-day decline, finding technical support at the aforementioned EMA. Market participants are adopting a cautious stance in anticipation of US inflation and sentiment data releases later in the week, coinciding with the planned implementation of US tariffs. Despite a relatively light UK economic calendar, Federal Reserve officials have expressed concerns that tariff-related uncertainty and inflationary pressures could complicate potential interest rate cuts. Nevertheless, market expectations for Fed rate cuts remain elevated, driven by the anticipation of negative economic consequences stemming from the tariffs, potentially leading to a US recession. According to the CME FedWatch Tool, rate swap traders are pricing in the possibility of a 25 basis point cut as early as May, with a higher probability assigned to a similar cut in July and expectations of a total reduction of 100 basis points or more by year-end.
