British Pound Bags Soft PCE and Forgets About It

The naive read is simple: softer US inflation is good for non-dollar currencies, and the pound should rally. The better market read involves the other side of the pair. The Bank of England faces its own inflation problem, one that is proving stickier than the Fed's. UK services inflation remains elevated, and wage growth has not decelerated as quickly as the BoE models projected. That means the BoE's rate-cutting path is likely slower than the market had priced a month ago.

When both central banks are in a hawkish pause, the rate differential between US 2-year Treasuries and UK Gilts becomes the dominant driver. That differential has narrowed only modestly, and position-squaring ahead of quarter-end amplified the dollar's bounce. GBP/USD cannot break higher unless the Fed signals a deeper cutting cycle than the BoE, or unless UK data surprises materially to the downside.

Next Decision Points for Sterling Traders

Two events will determine whether the pound can hold onto future dollar-weakness moves. First, the March UK CPI release, due in mid-April, will either confirm the BoE's caution or open the door for a May rate cut. A print above 3.5% would likely keep sterling supported on a relative basis. Second, the US March employment report and the next PCE release will test whether the February softness was a one-off or the start of a trend.

For now, GBP/USD is stuck in a $1.2550–$1.2700 band. A break above the top would require a catalyst that shifts the relative rate narrative decisively in the pound's favor. The soft PCE print was not that catalyst. It was a data point that the market used to fade the dollar intraday, then moved on.

The takeaway for position sizing: treat a soft US inflation print as a tactical opportunity to sell dollar strength against the pound, not as a signal to go long sterling outright. The forex correlation matrix can help identify which pairs are moving with the dollar and which are drifting on their own fundamentals.