Anna 
The GBP/USD pair extended its rally near 1.2710 during the early Asian session on Tuesday, as investors await fresh catalysts, particularly comments from various Federal Reserve (Fed) speakers scheduled for later in the day. The upcoming UK Consumer Price Index (CPI) inflation data and the release of the Federal Open Market Committee (FOMC) Minutes on Wednesday are also highly anticipated.
The US dollar traded steadily on Tuesday due to the lack of significant economic data releases from both the US and the UK. Fed officials have maintained a cautious stance regarding the timing of any easing cycle, emphasizing the necessity of keeping rates higher for longer to ensure inflation trends towards the target. The forthcoming FOMC Minutes are expected to provide further insights into the future path of interest rates.
On Monday, Fed Vice Chair Michael Barr stated that the central bank “will need to allow our restrictive policy some further time to continue to do its work.” Additionally, Fed policymaker Philip Jefferson noted that while inflation is easing, it is not doing so as quickly as anticipated. The Fed is widely expected to keep rates unchanged in its June meeting, with financial markets predicting a 76% chance of a 25 basis points rate cut by September and two cuts by the end of the year, according to the CME FedWatch Tool. This cautious approach by the Fed could strengthen the US dollar, potentially limiting the GBP/USD pair’s upside in the near term.
Conversely, the Bank of England (BoE) has not ruled out an interest rate cut at its June meeting. BoE Governor Andrew Bailey emphasized that the bank’s decisions will be data-driven, particularly by UK wage growth and consumer price inflation. The UK CPI inflation is forecasted to ease to 2.1% year-on-year in April from 3.2% in March, while core CPI inflation is expected to drop to 3.6% year-on-year from 4.2% in the previous reading. A softer reading could heighten expectations of rate cuts and exert downward pressure on the Pound Sterling (GBP).
As markets navigate these dynamics, the GBP/USD pair’s movement will likely be influenced by upcoming data releases and central bank communications, with investors closely monitoring any indications of policy shifts.
