• GBP/USD falls over 0.40% to 1.2657, with a strong USD and high Treasury yields overshadowing Pound amid stock volatility.
• UK deficit reduction spurs tax cut speculation; BoE may hold rates in February, possible cuts from May.
• Traders eye S&P Global Flash PMIs in UK, US; US Q4 GDP, Core PCE price index as key upcoming events.

The GBP/USD slumped more than 0.40% in the mid-North American session amid a strong US Dollar (USD) and high US Treasury bond yields underpinning the Greenback to the detriment of the Pound Sterling (GBP). At the time of writing, the major exchanges hands at 1.2657 after hitting a daily high of 1.2747.

Cable faces pressures as markets eye US GDP figures ahead

US stocks are trading mixed as companies reveal last year’s fourth-quarter results. On the data front, the Richmond Fed Composite and Manufacturing Index deteriorated further from -11 to -15 in January, while the Services edged up from 0 to 4.

During the European session, the Office for National Statistics (ONS) in the UK revealed the budget deficit was narrower than the figures of last year, printed a £-7.77 billion in December, lower than last year’s £-13.71 billion. That could open the door for a cut in taxes, as expressed by Chancellor Hunt and UK Prime Minister Rishu Sunak in the spring budget to be presented on March 6.

Moving to central banks, the Bank of England (BoE) isn’t expected to move the needle in February according to a Reuters poll. Nevertheless, investors see Governor Bailey and Co. slashing rates as early as May, with three additional cuts, which would drag the Bank Rate from 5.25% to 4.25%.

In the US, the Federal Reserve is expected to ease policy in June, via a Reuters poll. TD Securities analysts noted, “We still expect the Committee to maintain a cautious stance in the near term even amid an increasingly improving profile for consumer prices, as the Fed would like to ascertain that the recent progress in inflation is sustainable.” The poll suggests that most analysts estimate the Federal Funds Rate (FFR) would be adjusted from 5.25%-5.50% to 4.25%-4.50%.

Ahead on the week, the UK economic docket will feature S&P Global Flash PMIs on Wednesday, as in the US as well. On Thursday, the US calendar will unveil the preliminary reading for last year’s Q4 GDP figures and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (PCE) price index