GBP/USD holds below 1.2700 on firmer US Dollar, higher US yields

The GBP/USD pair weakens to 1.2695 during the early Asian session on Thursday. The downtick of the pair is supported by the stronger US Dollar (USD) amid the higher US yields and lower bets of the Federal Reserve (Fed) rate cut in September.

In recent weeks, Fed officials delivered a cautious tone on the inflation outlook, prompting traders to lower their bets on an easing cycle this year. Markets are pricing in a 50% chance that the Fed will hold interest rates in September, according to the CME FedWatch Tool. The combination of the Fed’s cautious stance and the stronger US economic data provide some support for the Greenback in the previous sessions. 

Investors will take more cues from the second estimate of the US Gross Domestic Product (GDP) for Q1 2024 on Thursday, which is expected to grow 1.3%. If the report shows a stronger-than-expected reading, this might further boost the USD and create a headwind for GBP/USD.  Apart from this, the US weekly Initial Jobless Claims, Goods Trade Balance, and Pending Home Sales are due later in the day. Also, the Fed’s Raphael Bostic, John Williams, and Lorie Logan are scheduled to speak.

On the GBP’s front, the growing speculation that the Bank of England (BoE) will start cutting interest rates in its August meeting due to a softer UK inflation outlook weighs on the Cable. The International Monetary Fund (IMF) expected two to three rate cuts from the BoE. In the absence of top-tier economic data releases from the UK, election speculation may influence the Pound Sterling (GBP). Concerns about political uncertainty might undermine the GBP and cap the upside for the pair in the near term.