Ella 
In early Asian trading on Tuesday, GBP/USD still had good support above the 1.2700 mark. Market sentiment turned cautious ahead of two important meetings of the Federal Open Market Committee (FOMC) and the Bank of England (BOE) on Wednesday and Thursday respectively. GBP/USD is currently trading around 1.2710, unchanged throughout the day.
U.S. inflation continues to fall unexpectedly. The core PCE price index, the Fed’s preferred indicator, fell to 2.9% in December, falling below 3% for the first time since early 2021. This sets the stage for the Federal Reserve to begin cutting interest rates in the coming months. The Federal Reserve will keep its benchmark interest rate unchanged at a 23-year high of 5.25-5.5% at its January meeting, following a lengthy effort to tame rampant inflation.
In terms of sterling, the Bank of England is widely expected to keep interest rates stable. Traders will be watching for information on interest rate guidance and the prospects for future rate cuts. Bank of England Governor Andrew Bailey said it was too early to lower interest rates. However, signs that UK inflation is easing could persuade the central bank to eventually cut interest rates.
Next, market participants will keep a close eye on Tuesday’s release of the U.S. JOLTS job openings and Conference Board consumer confidence index. The highlight of the week will be the Federal Reserve’s decision on Wednesday and the Bank of England’s interest rate decision on Thursday. These events can trigger market volatility and provide direction for the GBP/USD pair.
