GBP/USD Holds Steady Around 1.2700 Ahead of UK CPI and FOMC Decisions

The GBP/USD pair remains range-bound around the 1.2700 level during the Asian session, struggling to build on its two-day recovery from a three-week low near 1.2600. Traders are exercising caution as they await key events, including the UK Consumer Price Index (CPI) release and the highly anticipated Federal Open Market Committee (FOMC) policy decision.

The Federal Reserve is expected to reduce interest rates by 25 basis points, marking a shift to a more cautious approach regarding further rate cuts. Market participants will closely analyze the Fed’s updated dot plot and Chair Jerome Powell’s remarks for insights into the central bank’s future policy direction. These developments are likely to shape the near-term outlook for the US Dollar (USD) and, consequently, influence the GBP/USD pair.

Adding support to the USD, elevated US Treasury yields reflect market expectations of a less dovish Fed and concerns over potential fiscal policies under US President-elect Donald Trump, which could increase government borrowing and spur inflation. Geopolitical risks and trade tensions also bolster the USD, limiting upside potential for GBP/USD. However, reduced expectations of a Bank of England (BoE) rate cut provide some support for the British Pound (GBP).

On Tuesday, the UK labor market report revealed robust wage growth, with regular pay rising 5.2% annually between August and October, surpassing expectations. This data strengthens the case for the BoE to maintain its current interest rate policy and reduces the likelihood of multiple rate cuts in 2024. These factors may offer some stability to the GBP/USD pair ahead of the UK inflation data release later today.