GBP/USD Flat Below 1.2700

GBP/USD is struggling to move after a strong rebound from around 1.2615 (multi-day low) overnight, and remains in a narrow range in Asia on Wednesday. GBP/USD remains in the range it has been in for the past two weeks or so, and is currently just below the 1.2700 round mark.

The Bank of England (BOE)’s (BOE) suspension of dovish policy in June has raised the prospect of an interest rate cut in August. Against this background, the market remains anxious about the upcoming UK general election on Thursday, weighing on the pound. On the other hand, the US dollar (USD) has struggled to attract significant buyers against the backdrop of dovish remarks by Federal Reserve Chairman Jerome Powell on Tuesday, saying that the US economy has made significant progress in dealing with inflation and is back on track to suppress inflation.

Powell’s speech reaffirmed market expectations that the Fed is more likely to start a rate cut cycle in September and reduce borrowing costs again in December. This, as well as the slight pullback in US Treasury yields, put US dollar bulls on the defensive, and is therefore seen as a boost to the GBP/USD currency pair. Meanwhile, expectations of higher inflation under a Trump presidency than under a Biden presidency will limit downside for US Treasury yields and GBP/USD.

Traders also appear to be trading inactive, perhaps preferring to wait for more clues on the Fed’s rate cut path before making aggressive directional bets. As such, the focus remains on the Fed minutes to be released later in the US session. Meanwhile, US economic data on Wednesday, including the US ADP employment change for private sector employment and the ISM services PMI, could provide some momentum for the GBP/USD pair. However, the immediate market reaction may be limited ahead of key event risks.

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