Key events today:

6:00 UTC: USD – Consumer Price Index (CPI) m/m.

The GBP/USD pair remains defensive around 1.2430 in early Asian trading on Wednesday. Further strengthening of the US dollar (USD), spurred by aggressive remarks from Federal Reserve Chairman Jerome Powell and strong US retail sales data, is putting pressure on the GBP/USD pair. On Wednesday, investors will focus on the UK’s Consumer Price Index (CPI).

On Tuesday, Federal Reserve Chairman Jerome Powell stated that monetary policy needs to be tighter, which further dampened investors’ hopes for significant rate cuts this year. Powell added that recent economic data have not provided the Fed with more confidence, and achieving this confidence is likely to take longer than expected. The US central bank has held its base interest rate in the target range of 5.25 to 5.5% since July 2023. Financial markets have had to revise their expectations for rate cuts this year, expecting one or two cuts, which would not start until September.

On the other hand, investors are anticipating two rate cuts by the Bank of England (BoE) this year, with the first cut occurring in August or September, and an earlier rate cut than the Fed. This, in turn, has put pressure on the British pound (GBP) and created headwinds for the GBP/USD pair.

On Tuesday, Bank of England Governor Andrew Bailey stated that there is compelling evidence that inflation in the UK is decreasing, and the question for Bank of England policymakers is how much more evidence is needed before starting to lower interest rates. Bailey also mentioned that different inflation paths in the US and Europe this year might lead to slightly different rate cut trajectories.

Recommendations: Consider buying orders at a price of 1.2670. Sell at a price level of 1.2610.