Ella 
In early Asian trading on Tuesday, GBP/USD continued to strengthen to around 1.2710. Investors awaited new catalysts, with several Federal Reserve (Fed) speakers set to speak later in the day. On Wednesday, UK consumer price index (CPI) inflation data and the minutes of the Federal Reserve meeting will be closely watched.
The U.S. dollar was steady on Tuesday amid no major data releases from the U.S. and U.K. Fed officials remain cautious about the timing of their easing cycle, stressing the need for “higher interest rates for longer” to gain confidence that inflation is moving closer to target. The minutes of the Federal Reserve meeting due out on Wednesday will be in focus as they may provide some clues about the future path of interest rates.
On Monday, Fed Vice Chairman Michael Barr said “we need to keep restrictive policies in place for more time.” ” Meanwhile, Fed policymaker Philip Jefferson, another voting member of the Fed’s rate-setting committee, said inflation was still falling, albeit not nearly as fast as he expected. The Fed is widely expected to The Fed will keep interest rates unchanged when it meets again in June. The CME Fed Watch Tool shows that financial markets believe there is a 76% chance of a 25 basis point interest rate cut in September and a 76% chance of two rate cuts before the end of the year. Staying on the sidelines could boost the U.S. dollar (USD) and potentially halt GBP/USD upside in the short term.
On the other hand, the possibility of a rate cut by the Bank of England (BOE) at its June meeting cannot be ruled out. Bank of England Governor Bailey said that the Bank of England’s policy will be dominated by data such as British wage growth and consumer price inflation. UK consumer price index inflation is expected to slow to 2.1% in April from 3.2% in March, while core consumer price index inflation in April is expected to fall to 3.6% from 4.2% in the previous month. If inflation eases, it could trigger expectations of a rate cut and put pressure on sterling (GBP).
