GBP/USD sits near its highest level since September, just below mid-1.2500s ahead of FOMC minutes

The GBP/USD pair continues to gain positive traction for the third successive day and climbs to over a two-month peak during the first half of trading action on Tuesday. Spot prices maintain the bid tone around the 1.2530-1.2535 region through the early European session and seem poised to build on the ascending trend in the wake of the underlying bearish sentiment surrounding the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, dives to its lowest level since August 31 amid dovish Federal Reserve (Fed) expectations. Market participants now seem convinced that the US central bank is done with its policy-tightening campaign and have been pricing in the possibility of a series of rate cuts in 2024. This leads to a further decline in the US Treasury bond yields, which, along with a positive tone around the equity markets, is seen undermining the safe-haven buck and acting as a tailwind for the GBP/USD pair.

The British Pound (GBP), on the other hand, draws support from the fact that the Bank of England (BoE) Governor Andrew Bailey downplayed speculations about a possible rate cut. Speaking at an event on Monday, Bailey said that it was far too early to be thinking about rate cuts and borrowing costs might have to go up again if there were signs that inflation was proving more persistent than expected. This is seen as another factor lending support to the GBP/USD pair, though bulls might refrain from placing aggressive bets ahead of the crucial FOMC meeting minutes.

Investors will get a fresh insight into Fed officials' view on whether the US central bank should raise interest rates again. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair. Nevertheless, spot prices now seem to have found acceptance above the 100-day Simple Moving Average (SMA), which might have already set the stage for a further near-term appreciating move.

Technical levels to watch