- The Pound Sterling hovers near 1.3000 against the US Dollar as markets anticipate the Fed’s policy decision, dot plot, and economic outlook.
- Investors widely expect both the Federal Reserve and the Bank of England to maintain steady interest rates this week.
- Market sentiment stays cautious amid concerns over US President Trump’s planned reciprocal tariffs set to take effect on April 2.
GBP/USD Pauses Rally as Market Awaits Fed Policy Update
The Pound Sterling (GBP) struggles to sustain its rally above the key 1.3000 level against the US Dollar (USD) in early European trading on Wednesday. Investors remain cautious ahead of the Federal Reserve’s (Fed) highly anticipated monetary policy decision, scheduled for 18:00 GMT.
According to the CME FedWatch tool, the Fed is widely expected to keep interest rates steady in the 4.25%-4.50% range for the second consecutive meeting. The primary market focus will be on the Fed’s dot plot, which provides insight into policymakers’ rate projections, as well as the Federal Open Market Committee’s (FOMC) Summary of Economic Projections (SEP).
Traders will be keen to assess whether the Fed acknowledges signs of easing inflation and declining consumer confidence or if it signals concerns about rising inflation expectations, particularly in response to US President Donald Trump’s economic policies. The annual core Consumer Price Index (CPI) rose by 3.1% in February, marking its lowest level since April 2021.
Analysts at Fitch estimate that new US tariff policies could “accelerate inflationary pressures by one percentage point” in the near term, potentially delaying Fed rate cuts until the final quarter of the year. However, the CME FedWatch tool indicates that the first rate cut is still expected in June.
Daily Market Movers: Pound Sterling Awaits UK Employment Data, BoE Decision
- The Pound Sterling remains cautious ahead of key UK labor market data and the Bank of England’s (BoE) monetary policy decision, both scheduled for Thursday. The employment report for the three months ending in January will be closely watched, particularly the Average Earnings data, a crucial indicator of wage growth that has contributed significantly to persistent inflation in the services sector.
- On Tuesday, Brightmine, a leading UK data analytics firm, reported that wage growth has slowed as businesses prepare for an increase in payroll taxes in April. Chancellor of the Exchequer Rachel Reeves announced in the Autumn Budget that the National Insurance (NI) contribution for employers would rise from 13.8% to 15%.
- Brightmine’s report also revealed that many firms are considering hiring freezes, team restructuring, and even pay freezes in response to the upcoming tax changes. Despite this, economists expect Average Earnings, both including and excluding bonuses, to have remained steady at 5.9%.
- The BoE is widely expected to maintain interest rates at 4.5% with a 7-2 vote split. Policymakers Catherine Mann and Swati Dhingra are expected to support a rate cut, while the remaining seven members are likely to vote for no change. Market participants will closely monitor BoE Governor Andrew Bailey’s remarks on the UK’s economic outlook, particularly in light of Trump’s trade policies.
- Meanwhile, US Treasury Secretary Scott Bessent confirmed in a Fox Business interview that reciprocal tariffs will take effect on April 2. However, he expressed optimism that some tariffs could be renegotiated if countries agree to revised terms.
Technical Outlook: Pound Sterling Poised for Further Upside
The Pound Sterling is searching for a fresh catalyst to extend its two-month rally beyond 1.3000 against the US Dollar. GBP/USD bulls are taking a breather as the 14-day Relative Strength Index (RSI) has entered overbought territory above 70.00. However, this does not necessarily signal an end to the bullish trend. A slight cooling of the RSI to around 60.00 could provide the momentum needed for a renewed upside move.
The advancing 20-day and 50-day Exponential Moving Averages (EMAs), positioned near 1.2830 and 1.2690, respectively, indicate that the overall trend remains bullish.
In terms of key technical levels:
- Support: The 50% Fibonacci retracement at 1.2770 and the 38.2% Fibonacci retracement at 1.2614 serve as crucial downside support zones.
- Resistance: The October 15 high of 1.3100 marks the next significant resistance level.
As market volatility builds ahead of the Fed and BoE decisions, GBP/USD remains in focus, with traders awaiting clearer direction in the coming sessions.
