The US Dollar Is Weak & The Fed’s Interest Rate Decision Is Coming, GBP/USD Strengthens Above 1.2500

In early Asian trading on Monday, GBP/USD strengthened to around 1.2520. Investors will pay close attention to the Federal Reserve’s interest rate decision and press conference on Wednesday.

The Fed is expected to keep interest rates unchanged at the current range of 5.25%-5.5% on Wednesday. The U.S. economy remains strong and inflation is beginning to rise. Last Friday, the U.S. Bureau of Economic Analysis announced that the core PCE price index in March increased at an annual rate of 2.8%. The reports fueled speculation that the Federal Reserve may wait until September to start cutting interest rates.

Fed policymakers have noted that there will be no interest rate cuts in the coming months as inflation is firmer than expected and remains above the Fed’s 2% target. The Fed’s “higher interest rates for longer” stance may provide some support for the dollar and limit the downside for GBP/USD.

On the other hand, investors have increased bets that the Bank of England (BOE) will start cutting borrowing costs at its June meeting. Bank of England Governor Andrew Bailey said at a press conference after the last monetary policy meeting that two or three interest rate cuts this year would not be “inappropriate”.

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