GBP/USD braces to 1.2500 ahead of crucial Fed-BoE policy meetings

• On Tuesday, GBP/USD records minimal gains below the 1.2500 region.
• GBP/USD remains confined to the 1.2410-1.2600 range ahead of important Fed-BoE monetary policy meetings.
• GBP/USD Price Forecast: To remain downward pressured below 1.2600.

Amidst an upbeat market mood, as illustrated by global equities rising, the GBP/USD post modest gains, despite retreating from daily highs around 1.2567 towards the 1.2490s area, ahead of key monetary policy announcements by the Federal Reserve and the Bank of England, the former on May 4, while the latter at May 5. At the time of writing, the GBP/USD is trading at 1.2504.

A weak US dollar and high UK yields, a tailwind for GBP/USD

Wall Street’s record gains in the North American session. In the FX space, broad US dollar weakness keeps the greenback pressured, as shown by the US Dollar Index, falling some 0.20%, currently at 103.406. Meanwhile, high UK bond yields lifted Cable’s prospects though it failed to break the 1.2600 ceiling of the 1.2410-1.2600 range.

During the day, the UK economic docket featured April’s Manufacturing PMI, which was upward revised and came higher than the March reading. On Thursday, the Bank of England (BoE) would meet to decide its monetary policy. Money market futures expect a 25-bps interest rate increase, but some BoE members of late expressed “some” concerns regarding a slower pace of the UK economy, which has consumers suffering amid the worst cost-of-living squeeze in decades.

Regarding the US, the docket featured US Factory Orders for March, which grew by 2.2% m/m, higher than the 1.1% estimates. At the same time, March’s US JOLTs Job Openings came at 11.549M, beating expectations of 11M, showing the tightness of the US labor market.

Despite mixed US economic data, the Fed is expected to lift rates by 50-bps on Wednesday and could begin reducing its balance sheet by $95 billion. Also, money market futures have priced in additional 50-bps increases in June, July, and September meetings, which means that the Federal Funds Rate would be lying at 2.25-2.50% range by that time.

GBP/USD Price Forecast: Technical outlook

The GBP/USD remains defensive, though price action in the last four trading sessions consolidated in the 1.2410-1.2600 area. The MACD indicator shows that downward pressure seems to wane as the histogram approaches zero. However, as long as the distance between the MACD-line and its signal-line remains aiming lower, some selling pressure remains, so the GBP/USD is skewed to the downside.

The GBP/USD first support would be 1.2500. A breach of the latter would expose April’s 29 daily low at 1.2445, followed by the YTD low at 1.2411.