GBP/USD is trading with a slight positive bias near 1.2770 in the early Asian session on Tuesday. Traders are becoming more cautious about potential interest rate cuts by the Federal Reserve as strong US data and hawkish comments from the Fed have led them to lower their bets on rate cuts. This shift in sentiment is providing some support to the GBP/USD pair, as the US Dollar Index (DXY) remains under selling pressure at around 104.60. The Bank of England (BoE) is expected to keep interest rates on hold, which is further boosting the GBP.
Investors are eagerly anticipating key US data releases and speeches from Federal Reserve members scheduled for later on Tuesday. The US Conference Board’s Consumer Confidence, FHFA’s House Price Index, and speeches from Neel Kashkari, Mary Daly, and Lisa Cook are likely to provide further insights into the economic outlook and inflation trajectory. The markets have scaled back their expectations for interest rate cuts by the Fed, with the probability of a rate cut in September dropping from 63% to 49% according to the CME FedWatch tool. The upcoming US GDP economic growth data for the first quarter and the Core Personal Consumption Expenditures Price Index (Core CPE) will be closely watched for clues about inflation.
A higher-than-expected US inflation data could potentially boost the Greenback and put pressure on the GBP/USD pair in the short term. However, the Pound Sterling is gaining momentum as traders anticipate that the BoE will refrain from cutting rates to curb inflation. Citigroup strategist Jamie Searle explained that the UK election in July is expected to reduce the likelihood of an immediate BoE rate cut, as it would decrease the risk of political interference in the central bank’s decision-making process and allow for a more data-dependent approach.
Overall, the GBP/USD pair is experiencing a mild positive bias in the Asian session on Tuesday, supported by reduced expectations of interest rate cuts by the Federal Reserve and the possibility of the Bank of England keeping rates on hold. Key US economic data releases and speeches from Fed officials are expected to provide further clarity on the economic outlook and inflation trajectory, potentially impacting the direction of the currency pair in the near term. Traders will closely monitor the upcoming US GDP growth data and Core Personal Consumption Expenditures Price Index for signals about inflation, which could have implications for the strength of the US Dollar and the GBP/USD pair.