GBP/USD sees buying interest above mid-1.2500s before UK job, US inflation data

The GBP/USD currency pair, representing the exchange rate between the British Pound and the US Dollar, is showing signs of recovery in the early Asian trading session on Tuesday. This resurgence comes as the pair trades around 1.2565, marking a modest gain of 0.07% for the day. The week ahead is packed with pivotal economic events, with the spotlight firmly on the impending interest rate decisions from both the US Federal Reserve (Fed) and the Bank of England (BoE).

The Federal Open Market Committee (FOMC) is set to commence its two-day meeting on Tuesday, with the financial markets keenly awaiting the interest rate verdict on Wednesday. Market consensus widely anticipates the FOMC to maintain the interest rates at a steady range of 5.25–5.50%, consistent with its previous two meetings. Furthermore, there is a growing expectation that the FOMC might not only cease increasing rates but also potentially commence rate cuts as early as March 2024.

In a similar vein, investors and traders are eyeing the BoE’s stance. The general anticipation is for the BoE to keep rates steady at 5.25%, continuing its narrative of maintaining higher rates for an extended period. However, market forecasts suggest that the BoE might initiate rate reductions next year, albeit at a more gradual pace compared to both the Fed and the European Central Bank (ECB).

This week is also significant in terms of key economic data releases. On the UK front, the focus will be on the latest employment data scheduled for release on Tuesday. This includes critical figures such as the Unemployment Rate, Claimant Count Change, and wage inflation data. Expectations are for the UK Unemployment Rate to hold steady at 4.2% for the three-month period ending in October.

Turning to the US, the spotlight will be on the Consumer Price Index (CPI) data, a primary indicator of inflation, due later on Tuesday. The CPI figure is expected to show a monthly increase of 0.1%, up from the previous 0%, with the annual rate projected to slightly decline from 3.2% to 3.1% year-over-year. Additionally, on Wednesday, the US market will be attentive to the release of the Producer Price Index (PPI), another significant measure of inflationary trends.

These economic data releases and central bank decisions are likely to be key drivers for the GBP/USD pair, as investors and traders gauge the strength of the respective economies and the future monetary policy pathways of the Fed and BoE.