GBP/USD Holds Below Mid-1.2700

GBP/USD is slightly lower during early Asian trade on Tuesday. A slight rebound in the US dollar (USD) has provided some support to the major pair. As of press time, GBP/USD was trading around 1.2725, with an intraday decline of 0.04%.

The Federal Reserve held its last meeting of the year in early December. After the meeting, Fed officials announced that they would keep interest rates stable for the third consecutive month and said that as inflation slows faster than expected, the Fed will launch a series of interest rate cuts in 2024. Traders are betting the Fed will begin aggressive interest rate cuts as early as March. Markets are pricing in an 88% chance of a Fed rate cut in March, according to the CME FedWatch tool.

Data released on Friday showed that the U.S. Chicago Purchasing Managers’ Index fell to 46.9 in December from 55.8 in November, below expectations of 51.0. Market participants will get more clues from Friday’s U.S. non-farm payrolls (NFP) data. Nonfarm payrolls are expected to increase by 163,000 in December from 199,000 in the previous month.

In terms of sterling, the Bank of England (BOE) said it was too early to talk about cutting interest rates. However, investors expect the Bank of England to deliver as many as six interest rate cuts in 2024. The next Bank of England monetary policy meeting is on February 1.

Later on Tuesday, the UK will release the S&P Global/CIPS Manufacturing Purchasing Managers’ Index for December. In addition, the US S&P Global Manufacturing Purchasing Managers Index will also be released. The highlight of the week will be Wednesday’s Federal Reserve meeting minutes and Friday’s U.S. employment data for December, including U.S. nonfarm payrolls, unemployment rate and average hourly earnings.

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