- GBP/USD traders move to the sidelines ahead of the FOMC/BoE policy meetings this week.
- Rising Bets for a 50 bps Fed rate cut keep the USD bulls on the defensive and lend support.
- Traders now look to the US Retail Sales to grab short-term opportunities later this Tuesday.
The GBP/USD pair oscillates in a narrow trading band just above the 1.3200 mark during the Asian session on Tuesday and consolidates the previous day’s strong move up to over a one-week high. Investors opt to move to the sidelines ahead of the key central bank event risks – the highly-anticipated two-day FOMC meeting starting this Tuesday and the Bank of England (BoE) policy update on Thursday.
The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and the markets are currently pricing in over a 60% chance of an oversized 50-basis points interest rate cut amid signs of easing inflationary pressures. This keeps the US Treasury bond yields depressed at one or two-year lows and fails to assist the US Dollar (USD) to register any meaningful recovery from the YTD low, which, in turn, is seen acting as a tailwind for the GBP/USD pair.
The British Pound (GBP), on the other hand, is underpinned by expectations that the BoE’s rate-cutting cycle is more likely to be slower than in the United States (US). That said, investors are still betting on more BoE rate cuts, especially after data released last week pointed to a slowdown in the UK wage growth and a flat GDP print for the second straight month in July. This might hold back traders from placing aggressive bullish bets around the GBP/USD pair and cap the upside.
Moving ahead, there isn’t any relevant market-moving economic data due from the UK on Tuesday, leaving spot prices at the mercy of the USD. Later during the early North American session, traders will take cues from the release of US Retail Sales data, which, along with the US bond yields, will influence the USD demand and provide some impetus to the GBP/USD pair. Nevertheless, the aforementioned fundamental backdrop warrants some caution for aggressive traders.
Read the full article here