Key events today:
12:30 UTC: USD – Consumer Price Index.
18:00 UTC: USD – Federal Reserve meeting minutes release.
The GBP/USD pair is trading near the 1.2675 mark in the early Asian session on Wednesday. The US Dollar Index (DXY) is consolidating just above the 104.00 level amidst cautious sentiment. Investors are awaiting the US Consumer Price Index (CPI) data, as well as the publication of the Federal Reserve meeting minutes later in the day. According to the latest forecast from the UK’s Office for Budget Responsibility (OBR), the country’s economy is expected to grow by 0.8% this year amid a recovery in domestic demand. Monthly Gross Domestic Product (GDP) data will be published on Friday. If the GDP data turns out to be stronger than forecasts, it could slow the easing cycle and boost the British pound (GBP) against the US dollar. Currently, markets are predicting a 75 basis point (bps) rate cut by the Bank of England (BoE) this year, which would bring the base rate down from the current level of 5.25% to 4.5%.
Some Federal Reserve officials have made “hawkish” statements. Chicago Fed President Austan Goolsbee stated on Monday that the recent employment report was “quite strong,” but the central bank must weigh how long it can maintain the current interest rate without harming the economy. Meanwhile, Minneapolis Fed President Neel Kashkari said the labor market is no longer “hot,” but remains tight. He stated that the baseline scenario is for inflation to continue declining.
Financial markets have priced in almost a 57% probability of a rate cut in June, and the probability of a rate cut in July has fallen below 75%, according to CME FedWatch Tool data. All eyes will be on the US CPI data for March, as it may help the Fed determine the direction of monetary policy after the indicator rose by 3.2% compared to the previous year last month. Signs of persistent inflation and strong growth in the US could contribute to the dollar’s strengthening in the near term.
Recommendation: Predominantly trade with Sell orders from the current price level.