GBP/USD holds above the 1.2700 mark, UK CPI, Fed rate decision eyed

The GBP/USD pair trades in negative territory for the fifth consecutive day during the early Asian session on Wednesday. Investors await the UK February Consumer Price Index (CPI) inflation data and the Federal Reserve (Fed) interest rate decision on Wednesday. The Fed is anticipated to hold rates steady for a fifth straight time at its March meeting. GBP/USD currently trades around 1.2719, down 0.01% on the day. 

Markets expect the Fed will keep its benchmark rate steady in a range of 5.25% to 5.5% on Wednesday as inflation remains elevated. Fed Chairman Jerome Powell noted that cutting rates too early could spark a resurgence of inflation and cause more pain for consumers. The Fed is likely to maintain its forward guidance and stress that it needs more evidence that inflation is on a sustainable path toward its 2% target before lowering interest rates. The lower bets on the rate cut expectation might lift the US Dollar (USD) in the near term and cap the upside of the GBP/USD pair. 

On the other hand, the UK CPI inflation report due later in the day might offer some hints on whether the Bank of England (BoE) will signal the timeline of its first interest rate cut or retain its higher rate for a longer stance. The headline UK CPI is expected to rise 3.6% MoM in February from a 4.0% rise in January, while the Core CPI figure is projected to fall to 4.6% YoY in February from a 5.1% rise in January. The stronger-than-expected data might convince the BoE to hold the higher rates for a longer rate narrative and boost the Pound Sterling (GBP) against the Greenback. 

Traders will keep an eye on the UK CPI inflation for February on Wednesday ahead of the Fed interest rate decision. After the meeting, the focus will turn to Chairman Jerome Powell’s press conference and economic projections. On Thursday, the BoE interest rate decision will be a closely watched event. These events could give a clear direction to the GBP/USD pair.