The GBP/USD pair is facing difficulty in capitalizing on its recent recovery, struggling to hold on to gains after bouncing off a three-week low near 1.2600 on Monday. During the Asian session on Wednesday, the pair remains range-bound, trading around the 1.2700 mark, largely unchanged for the day. Traders are adopting a cautious approach, awaiting the outcome of the highly anticipated Federal Open Market Committee (FOMC) meeting later in the day before making fresh directional bets.
Focus on Federal Reserve’s Policy Decision
The Federal Reserve (Fed) is widely expected to lower borrowing costs by 25 basis points at its December meeting. However, the central bank is also expected to signal a more cautious approach to future rate cuts. As a result, market participants will closely scrutinize the Fed’s updated economic projections, including the “dot plot,” and listen for any guidance on future rate moves during Fed Chair Jerome Powell’s post-meeting press conference. These developments are expected to have a significant impact on the US Dollar (USD) and, by extension, the GBP/USD pair.
US Dollar Supported by Geopolitical Risks and Elevated Yields
The outlook for a less dovish Federal Reserve, combined with growing speculation that US President-elect Donald Trump’s policies could lead to higher government borrowing and inflation, continues to support elevated US Treasury bond yields. In addition, persistent geopolitical risks and trade war concerns are acting as a tailwind for the US Dollar. These factors are likely to cap any significant upside for the GBP/USD pair, although reduced expectations for aggressive rate cuts by the Bank of England (BoE) are providing some support to the British Pound (GBP).
UK Jobs Report Bolsters GBP Outlook
A stronger-than-expected UK jobs report released on Tuesday showed that regular pay growth accelerated to an annual rate of 5.2% between August and October. This data strengthens the case for the BoE to maintain its current interest rate policy at this week’s meeting and has led investors to scale back bets on multiple rate cuts by the BoE next year. As a result, the British Pound (GBP) is receiving some support, limiting further downside for the GBP/USD pair ahead of the release of the UK consumer inflation data later today.
Technical Outlook for GBP/USD
The GBP/USD pair remains stuck in a narrow range as it waits for clearer directional cues from the Fed’s policy decision and UK inflation data. If the pair manages to break above the 1.2700 level and sustain the move, it could test resistance around 1.2750. Conversely, failure to push higher may see the pair retest support near 1.2600.
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