The British Pound (GBP) is facing headwinds as the US Dollar (USD) strengthens and investors turn cautious ahead of key central bank meetings this week.
Fed on Hold, Future Cuts on Horizon? The Federal Reserve is widely expected to maintain its current interest rate of 5.25% at its meeting on Wednesday. However, hints about future rate cuts could emerge during the press conference. Fed Chair Jerome Powell has previously indicated the possibility of lowering rates later in 2024, despite the ongoing battle against inflation. Investors will be closely scrutinizing the Fed’s stance on future monetary policy, with any hawkish signals potentially bolstering the USD.
BoE Waits, Potential August Cut? The Bank of England (BoE) is also likely to hold its benchmark rate at 5.25% on Thursday. Unlike the Fed, the BoE might offer a clearer dovish tilt, with market expectations pointing towards potential rate cuts starting in August. This divergence in central bank policies could weigh on the GBP as investors seek higher returns in dollar-denominated assets.
Focus on Central Bank Meetings and Outlooks: This week’s economic calendar revolves around the upcoming central bank pronouncements. The Fed’s meeting and press conference on Wednesday will be the primary focus, with investors dissecting the bank’s updated economic projections alongside the policy decision. The BoE’s rate decision on Thursday, accompanied by any commentary on inflation and economic growth, will also be closely watched. These meetings will likely determine the near-term direction of the GBP/USD pair as the market weighs the contrasting monetary policy stances of the Fed and the BoE.