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GBP/USD Awaits Fed's Decision Amid UK Inflation Data

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In the European session on Wednesday, GBP/USD maintains its position around the 1.2700 mark as traders digest UK inflation data. With our buy limit already in place at this level, all eyes are now on the Federal Reserve's (Fed) policy announcements, which are expected to influence market sentiment.

The latest figures from the UK's Office for National Statistics show a decline in inflation, with the Consumer Price Index (CPI) falling to 3.4% year-on-year in February, below market expectations of 3.6%. This led to a nearly 2% drop in the rate-sensitive 2-year UK government bond yield, pushing it below 4.2% and exerting downward pressure on GBP/USD.

Later today, the Fed is anticipated to maintain the policy rate unchanged at 5.25%-5.5%. However, all eyes will be on the revised Summary of Economic Projections (SEP), particularly the dot plot, for insights into potential policy adjustments and the outlook for interest rates.

Should the dot plot suggest a preference for a 75 bps rate reduction this year, markets may anticipate a rate cut in June, leading to a decline in US Treasury bond yields and weighing on the USD. Conversely, if policymakers lean towards a 50 bps rate reduction, it could signal a more hawkish stance, potentially bolstering the USD and keeping GBP/USD under pressure during the American session.

Furthermore, we have set a buy limit at 1.2640 in case of a potential downturn during the US session.

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The GBP/USD pair experienced a reversal in direction following Wednesday's decisive uptrend, driven by widespread selling pressure on the US Dollar (USD). As of the time of writing, the pair remains in a consolidation phase just below the 1.2760 level, with market attention turning to the upcoming Bank of England (BoE) policy announcements.

Technically, there is anticipation of a pullback around the current level indicated by the green rectangle, followed by a potential upward movement aligning with the prevailing trend.

Later today, investors will focus on the release of key US economic data, including the weekly Initial Jobless Claims and S&P Global's preliminary Manufacturing and Services PMI figures for March. Concurrently, US stock index futures are showing gains ranging between 0.4% and 0.9%. Barring any adverse data surprises, a continuation of the risk-on sentiment following the opening bell on Wall Street could exert further downward pressure on the USD.