Pound Sterling takes breather after a strong run ahead of Fed-BoE policy decision

The Pound Sterling drops to near 1.3330 against the US Dollar ahead of the Fed’s monetary policy announcement. The Fed is expected to hold interest rates steady, while the BoE is set to reduce them on Thursday. US-China trade talks will be the key trigger for the global market. The Pound Sterling (GBP) takes a breather on Wednesday after a sharp upside move the previous day. The British currency remains broadly firm against its peers as the United Kingdom (UK) and the US are close to signing a bilateral trade deal. A report from the Financial Times (FT) showed on Tuesday that both countries are close to a trade agreement in which the US will lower tariffs on UK steel and cars. In return, the UK would reduce tariffs on autos and agricultural products from the US and make changes to the digital services tax. Going forward, the major trigger for the British currency will be the Bank of England’s (BoE) monetary policy decision, which will be announced on Thursday. The BoE is expected to reduce interest rates by 25 basis points (bps) to 4.25%. This would be the fourth interest rate cut by the BoE in the current monetary easing cycle, which started in August last year. Investors will pay close attention to the BoE’s guidance on the monetary policy and the economic outlook. Market experts believe that the BoE could guide an aggressive policy-easing outlook in the wake of the US-China trade war. Investors worry that China would move to other economies to sell its products. Given the low-cost competitive advantage of China, the competitiveness of products from other nations would diminish if Beijing pushes more products into the global market. British Pound PRICE This week The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the US Dollar. The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote). Daily digest market movers: Pound Sterling will be influenced by BoE policy meeting The Pound Sterling falls slightly to near 1.3330 against the US Dollar (USD) during European trading hours on Wednesday. The GBP/USD pair faces pressure as the USD ticks higher ahead of the Federal Reserve (Fed) monetary policy announcement at 18:00 GMT, in which the central bank is almost certain to keep interest rates steady in the current range of 4.25-4.50%. This would be the third straight policy meeting in which the Fed will leave borrowing rates steady amid uncertainty over how new economic policies by United States (US) President Donald Trump will shape the economy. A string of Fed officials, including Chair Jerome Powell, have guided that “wait and see” is an optimal approach until they get clarity on how much new policies will influence inflation and the economic outlook. US consumer inflation expectations have elevated as local business owners have clarified that they will pass on the impact of high import duties to consumers, a compelling factor for the Fed to demand more time before making any monetary policy adjustments. Additionally, steady job growth in the wake of Trump’s tariff policies is another limiting factor for the Fed to act prematurely by lowering interest rates. Meanwhile, the US and China have agreed to trade discussions this week. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer confirmed on late Tuesday that they will meet their Chinese counterparts for trade discussions this week in Geneva. This will be the first confirmed meeting between the world’s two largest powerhouses since the imposition of reciprocal tariffs and retaliatory duties announced by the US and China, respectively. Earlier this week, US Secretary Bessent signaled that Washington will have trade talks with Beijing sooner as these tariff rates are not sustainable. A positive outcome from the US-China trade talks will be favorable for risky assets across the globe. Technical Analysis: Pound Sterling stays above 1.3300 The Pound Sterling corrects 0.3% to near 1.3330 against the US Dollar at the time of writing, but still holds the key level of 1.3300. The overall outlook remains bullish as all short-to-long Exponential Moving Averages (EMAs) are sloping higher. The 14-day Relative Strength Index (RSI) strives to return above 60.00. A fresh bullish momentum would trigger if the RSI manages to do so. On the upside, the three-year high of 1.3445 will be a key hurdle for the pair. Looking down, the April 3 high around 1.3200 will act as a major support area. Economic Indicator Fed Interest Rate Decision The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates). Read more. Next release: Wed May 07, 2025 18:00 Frequency: Irregular Consensus: 4.5% Previous: 4.5% Source: Federal Reserve Source: https://www.fxstreet.com/news/pound-sterling-declines-against-us-dollar-ahead-of-feds-monetary-policy-announcement-202505070954