GBP/USD extends its upside below 1.2700, eyes on US GDP data

The GBP/USD pair extends the rally below the 1.2700 psychological barrier during the early Asian session on Tuesday. The FOMC minutes indicated that the Fed had reaffirmed a data-driven approach, leading to a more dovish outlook, which weighs on the US Dollar (USD) and creates a tailwind for the pair. At press time, GBP/USD is trading at 1.2685, gaining 0.02% on the day. 

A testimony to the UK Treasury committee by Bank of England (BoE) Governor Andrew Bailey and other policymakers last week prompted speculation of delay rate cuts, which lift the Pound Sterling (GBP). Bailey said that he would not forecast how many cuts there would be, but the bank was on a path toward lowering rates. 

He further stated that the central bank has shifted from a stance of how tight policy needs to be, and how high rates need to be, to how long the BoE needs to retain this stance to achieve sustained inflation. The markets have priced in four rate cuts at the end of this year after the BoE decided to maintain the interest rate unchanged at 5.25% earlier this month.  

On the other hand, New York Federal Reserve (Fed) President John Williams said last week that the central bank is on track to cut interest rates later this year, despite stronger-than-expected inflation and labor market data in January. However, Fed Chair Jerome Powell highlighted last week that a March cut is highly unlikely, while several Fed officials prefer to wait for additional evidence of inflation data before lowering the interest rate. Investors have priced in the first rate in the June meeting or later. 

Later this week, the US Gross Domestic Product Annualized for the fourth quarter (Q4) will be due, which is forecast to remain steady at 3.3%. On Thursday, the US Personal Consumption Expenditures Price Index (PCE) will be in the spotlight. Traders will take cues from the data and find trading opportunities around the GBP/USD pair.