GBP/USD Consolidates Gains Above 1.2550, Focus On Fed Interest Rate Decision

In early Asian trading on Tuesday, GBP/USD consolidated its gains around 1.2560 after hovering between the key 200-day moving average and the three-week high of 1.2550-1.2560. The U.S. Dollar Index (DXY) fell to 105.65, providing support for GBP/USD’s rebound. The Fed’s rate decision on Wednesday will take center stage ahead of Friday’s April non-farm payrolls (NFP) data.

The Fed is widely expected to keep interest rates at their highest level in more than two decades after Wednesday’s meeting. Investors will get more clues from the spirit of the meeting and Fed Chairman Jerome Powell’s press conference speech. Financial markets expect the Fed to cut interest rates just once in 2024, down from roughly six cuts of 25 basis points each at the start of the year.

The latest stronger-than-expected data on U.S. gross domestic product growth and inflation could convince the Federal Reserve to keep interest rates higher for longer, reassuring that inflation is heading toward the central bank’s 2% target. A hawkish stance from the Fed is likely to boost the US dollar and limit GBP/USD upside in the short term.

On the other hand, the pound strengthened as Bank of England (BOE) policymakers gave unclear guidance on the outlook for inflation. Investors lowered their bets on a rate cut from the Bank of England, providing some support for the pound. In the absence of primary economic data releases from the UK, USD volatility will continue to play a key role in the GBP/USD pair.

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