Pound Sterling drops despite traders reassess BoE dovish bets

• The Pound Sterling extends correction to near 1.3460 against the US Dollar as the Greenback recovers on US-EU trade deal optimism.
• The improvement in US-China trade relations has boosted US Consumer Confidence.
• Markets don’t expect the BoE to cut interest rates in June.

The Pound Sterling (GBP) underperforms its peers during European trading hours on Wednesday. The British currency takes a breather after a sharp rally in the past few trading days as investors seek fresh cues on whether the Bank of England (BoE) will cut interest rates again at its June policy meeting.

The BoE reduced its borrowing rates by 25 basis points (bps) to 4.25% earlier this month, with a 7-2 vote split, and guided a “gradual and cautious” interest rate cut approach.

The latest strong United Kingdom (UK) Consumer Price Index (CPI) and Retail Sales data for April, along with the upbeat Q1 Gross Domestic Product (GDP) figures, are sufficient to discourage BoE officials from cutting interest rates further.

This month, the UK service inflation data, closely tracked by Sterling retraces to near 1.3460 against the US Dollar from the three-year high around 1.3600 on Monday. However, the outlook of the pair remains firm as the 20-day Exponential Moving Average (EMA) slopes higher around 1.3380.

The 14-day Relative Strength Index (RSI) holds above 60.00, suggesting that the bullish momentum is intact.

On the upside, the January 2022 high of 1.3750 will be a key hurdle for the pair. Looking down, the 20-day EMA will act as a major support area.