GBP/USD held in NorAm near its overnight 2-week low of 1.2725, as a slew of central bank meetings loomed this week, with traders wary of downside risks to sterling from both the Fed and BoE.
While the U.S. and UK central banks are expected to leave rates unchanged, market participants are keen for signals from both about the start and depth of expected cuts, which will hold significant sway on the path of GBP/USD.
Early 2024 GBP strength came on the heels of dovish Fed rate expectations of as much as 160+bp in rate cuts in 2024.
That has been significantly dialed back, with LSEG's IRPR now pricing -73bp this year.
The recent GBP/USD yaw on the back of dovish testimony by Fed Chair Jerome Powell and then hawkish U.S. CPI and PPI intensified the spotlight on the two central banks.
For GBP/USD traders, risks are symmetrical as there has been growing speculation of a possible guidance shift lower by the Fed to two Fed cuts in 2024, and should UK CPI on March 20 hint at falling UK inflation, the BoE may see votes to cut grow, weighing on sterling.
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