Sterling fell in European trade on Tuesday against a basket of major rivals, extending losses for the second straight session against the dollar on expectations that the Bank of England might cut interest rates sooner than the Federal Reserve. 

Now investors await a Parliamentary hearing for Bank of England officials later today on monetary policies to gather more clues about the future. 

GBP/USD

GBP/USD fell 0.2% to 1.2579, with a session-high at 1.2598, after closing down 0.1% on Monday, the first loss in three days on thin trading. 

UK Rates

Recent UK inflation and growth data is raising the odds for an early UK interest rate cut in May.

Markets are now expecting a 15% chance of a UK interest rate cut in March, and a 50% chance for such a cut in May. 

Overall, traders now expect 71 basis points of total UK rate cuts in 2024, down from 134 basis points in previous forecasts.

Hearing Session

As of 10:15 GMT, the UK Parliament will hold a monetary policy hearing session with Bank of England policymakers, which could provide clues on the future path of policies. 

The BOE said following its last policy meeting, that it expects consumer prices to hit the 2% target in the second quarter of 2024 before rising once more in the third and fourth quarters. 

BOE Governor Andrew Bailey said that it won’t be “mission accomplished” if inflation returned to 2% in April, as pressures from services prices are still ongoing. 

He asserted the need to see more evidence of the slowdown of consumer prices towards the 2% target before cutting interest rates. 

Yen declined in Asian trade on Tuesday against a basket of major rivals, resuming losses against the dollar and trading below 150 yen per dollar once more as US treasury yields rally.

The gains came despite statements by Japan’s financial minister on monitoring the currency’s forex movements and preparing for intervention to support it if needed. 

USD/JPY

USD/JPY rose 0.15% to 150.37, with a session-low at 150.07, after the yen rose 0.1% yesterday against the dollar away from a three-month trough at 150.88.

US Treasury Yields 

US 10-year treasury yields rose by over 0.8 basis points today, maintaining gains for another session and underpinning the greenback. 

The developments come following a spate of strong US data and bullish remarks by Fed officials this month. 

The data and remarks hurt the odds of early US interest rate cuts in March and May, and bolstered the conviction that June will likely be the date of the first Fed rate cut. 

Higher US yields pressure the yen against the dollar, as the yield gap between Japanese and US bonds widens.  

Japan’s Financial Minister 

Japan’s financial minister Shinuchi Suzuki said on Tuesday that authorities are closely monitoring yen’s movements in the forex market and will intervene to support the local currency if needed.

US stock and bond markets are closing today for the Presidents Day holiday. 

Markets will reopen tomorrow with investors continuing to assess the Federal Reserve's likely monetary policy decisions in the months ahead.

Recent US inflation data showed consumer prices rose more than expected in January, raising pressures on the Federal Reserve and hurting the odds of early rate cuts in March or May. 

International benchmark Brent rose on Monday on track for the third profit in a row, moving near three-week highs on concerns about supply disruptions due to growing geopolitical tensions in the Middle East.

Prices are also boosted by hopes of improving demand on fuel in China, the world’s largest oil importer, after the end of the New Lunar Year holiday. 

Brent Prices Today

Brent prices rose 0.5% to $83.47 a barrel, with a session-low at $82.58, after closing up 0.6% on Friday, scaling a three-week high at $83.63.  

Brent rallied 1.6% last week, the second weekly profit in a row as Middle East tensions grew. 

Middle East Tensions 

Geopolitical tensions in the Middle East continue to grow, as Israel continues to launch strikes against Hamas militants in Rafah, while western nations, led by the US, are calling for a ceasefire. 

A UK-registered cargo ship reported a new attack from Yemen’s coasts on Sunday, with the crew leaving the ship after an explosion. 

The Iran-backed Houthi group said it won’t stop escalating conditions in the Red Sea until the Israel war with the Gaza strip is over.

Chinese Demand 

Many analysts expect fuel demand to rebound in China as economic activities resume in full following the New Lunar Year holiday. 

Chinese authorities recently took fresh stimulus measures to support struggling growth, which is expected to reflect on fuel demand.