GBP/USD holds positive ground above 1.2500 on weaker US Dollar, Fed rate decision looms
- GBP/USD trades on a positive note around 1.2520 amid weaker USD on Monday.
- The recent US PCE inflation data dialed back their expectation of when the Federal Reserve (Fed) will start cutting interest rates.
- Investors increased their bets that the BoE will start cutting rates in June.
The GBP/USD pair holds positive ground near 1.2520 on Monday during the early Asian session. The uptick of the major pair is supported by the softer US Dollar (USD) below the 106.00 psychological mark. Investors will closely monitor the Federal Open Market Committee (FOMC) interest rate decision and Press Conference on Wednesday.
The US Federal Reserve (Fed) is expected to leave the interest rate unchanged in its current 5.25%–5.5% range on Wednesday. The US economy remains strong, and inflation has started to turn higher. On Friday, the US Bureau of Economic Analysis showed the Core Personal Consumption Expenditures (PCE) Price Index rose 2.8% YoY in March. These reports have triggered speculation that the first cut might not come until September.
The Fed policymakers noted that rate cuts are not coming in the next several months as inflation was stickier than expected and remains above the Fed’s 2% target. The higher-for-longer stance from the US central bank might provide some support to the Greenback and cap the downside of the GBP/USD pair.
On the other hand, investors raise their bets that the Bank of England (BoE) will start lowering borrowing costs in its June meeting. The BoE Governor Andrew Bailey said during the press conference after the last monetary policy meeting that two or three rate cuts this year are not "unreasonable." A dovish shift in the BoE remarks might lead to a weaker Pound Sterling (GBP) and create a headwind for the pair.