- GBP/USD remains on the defensive near 1.2726 amid the stronger USD and risk-off mood.
- Fed is likely to maintain its monetary policy for a fifth straight time at its March meeting.
- BoE is expected to leave rates unchanged at 5.25% on Thursday, with the expectation of cutting rates in August.
- The Fed and Bank of England interest rate decisions will be the highlights of this week.
The GBP/USD pair remains under some selling pressure during the early Asian session on Tuesday. The uptick in the US Dollar (USD) above 103.50 and higher US yields provide some support to the major pair. Markets turn cautious ahead of the central bank meetings, including the Federal Reserve (Fed) and Bank of England (BoE) interest rate decisions. At press time, GBP/USD is trading at 1.2726, down 0.02% on the day.
The Fed is anticipated to keep its interest rate unchanged for a fifth straight time at its March meeting on Wednesday and signal that they still need further evidence that inflation to return sustainably to its 2% target. The Fed Chair Jerome Powell said earlier this month that the US central bank might cut its benchmark interest rate later this year, even though continued progress on lowering inflation to the target “is not assured.”
Traders will also closely monitor press conference, which is unlikely to show a significant shift. However, there is still a possibility that policymakers might reduce the number of rate cuts they anticipate seeing this year to two from the earlier three.
On the other hand, UK inflation is moderating, but the BoE remains cautious in its approach until the CPI returns to the 2% target. The BoE is likely to leave interest rates unchanged at 5.25% on Thursday. Investors expect the UK central bank to start cutting rates in August, with one or two further cuts by the end of the year.
Later on Tuesday, the US Building Permits, and Housing Starts are due in the US docket. All eyes will be on the Fed monetary policy meeting and the press conference on Wednesday. Also, the Fed’s officials will update their quarterly economic projections. On the UK docket, the BoE interest rate decision on Thursday will be in the spotlight. Along with the rate decision, BoE policymakers might offer clues about inflation, economic growth, and the labour market outlook.
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