The GBP/USD pair edged lower on Wednesday, trading around 1.2990 during Asian hours after posting gains in the previous two sessions. The British Pound struggled as the US Dollar (USD) remained resilient, supported by steady US Treasury yields ahead of the Federal Reserve’s (Fed) highly anticipated interest rate decision later in the day.
Markets widely expect the Fed to hold interest rates steady, as concerns over persistent inflation and economic uncertainty persist. The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, hovered near 103.40. Meanwhile, yields on the 2-year and 10-year US Treasury bonds stood at 4.04% and 4.29%, respectively, at the time of writing.
Despite its strength, the Greenback faced some pressure due to weak US economic data and renewed tariff threats from former President Donald Trump, adding to investor caution. Market participants are closely monitoring the Fed’s updated economic projections for potential signals regarding the future direction of interest rates. Any hawkish stance from policymakers could provide further strength to the USD.
Political Uncertainty Adds to Market Jitters
Adding to the uncertainty, The Wall Street Journal reported that Trump dismissed two Democratic Federal Trade Commission (FTC) commissioners. However, questions remain over whether he has the legal authority to do so, sparking speculation about potential firings of Federal Reserve Chair Jerome Powell and other Fed officials.
BoE Rate Decision in Focus for GBP Traders
Meanwhile, the British Pound traded cautiously as investors turned their attention to the Bank of England’s (BoE) interest rate decision scheduled for Thursday. The BoE is widely expected to keep rates unchanged at 4.5%, with a likely 7-2 voting split among policymakers.
BoE Monetary Policy Committee (MPC) members Catherine Mann and Swati Dhingra are anticipated to push for a rate cut. In the February meeting, both officials advocated for a larger-than-usual 50 basis-point (bps) reduction, while the majority favored a more measured 25 bps cut.
As traders assess the Fed’s stance and the BoE’s policy outlook, GBP/USD remains vulnerable to shifts in market sentiment and central bank decisions.
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