GBP/USD flirts with daily low around 1.2700 mark, FOMC minutes eyed for fresh impetus

The GBP/USD pair extends the previous day's late pullback from a multi-day peak, around the 1.2735-1.2740 area and remains on the defensive through the Asian session on Wednesday. Spot prices currently trade around the 1.2700 mark as traders await fresh clues about the Federal Reserve's (Fed) future rate-hike path.

Growing acceptance that the US central bank will lift borrowing costs by 25 bps at the end of the July policy meeting remains supportive of elevated US Treasury bond yields. This, in turn, lends some support to the US Dollar (USD) and seems to weigh on the GBP/USD pair. That said, the incoming softer US macro data raises questions over how much headroom the Fed has to continue raising interest rates and holds back the USD bulls from placing aggressive bets.

It is worth recalling that the US Bureau of Economic Analysis reported last Friday that the annual PCE Price Index decelerated more than anticipated, to 3.8% in May from the 4.3% previous. Moreover, the core gauge, excluding food and energy, edged lower to 4.6% from 4.7% in April. Adding to this, the ISM Manufacturing PMI remained in the contraction territory for the eighth successive month in June and dropped to 46.0, or its lowest level since May 2020.

Hence, the market focus remains on the June FOMC meeting minutes, due for release later during the US session. Investors will look for fresh cues about the Fed's policy outlook, which will play a key role in influencing the near-term USD price dynamics and determine the next leg of a directional move for the GBP/USD pair. In the meantime, worries about economic headwinds stemming from rapidly rising borrowing costs could lend support to the buck and cap the major.

The market fears that the British economy is heading for a recession mounted sharply following a surprise 50 bps rate hike by the Bank of England (BoE) on June 22. Furthermore, BoE Governor Andrew Bailey last week justified the decision and said that rates could remain at peak levels for longer than traders currently expect. This might contribute to keeping a lid on the GBP/USD pair as market participants now look to the final UK Manufacturing PMI for some impetus.

Technical levels to watch