GBP/USD hovers nearby 1.2400 ahead of the US FOMC decision after soft UK CPI

• GBP/USD fluctuates around 1.2370s, though it remains positive ahead of the Fed’s decision.
• UK inflation eased beneath the 11% threshold, which could cement a 50 bps rate hike by the BoE on Thursday.
• GBP/USD Price Analysis: Upward biased, with buyers eyeing 1.2500.

The GBP/USD climbs in the North American session as traders brace for the Federal Reserve’s (Fed) last monetary policy meeting, which will likely unveil a 50 bps rate hike and release its update in the Summary of Economic Projections (SEP). Hence, the GBP/USD is trading at around 1.2393, registering gains of 0.28% after hitting a high of 1.2400.

GBP/USD traders prepare for the Federal Reserve’s decision

US equities are set to open mixed, as shown by the futures market. A light economic calendar in the United States (US), except for the Federal Reserve Open Market Committee (FOMC) interest rate decision around 18:00 GMT, refrains traders from opening fresh long/short bets in the GBP/USD.

Since Jerome Powell’s speech on November 30, opening the door for smaller rate hikes, as soon as the December meeting, sent the GBP/USD rallying close to 4.50%. Nevertheless, he pushed back against a Fed pivot, stating that “the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.” Although Jerome Powell’s message tone was neutral, the market perceived it as dovish, as shown by the reaction of the markets.

Earlier data released from the Office for National Statistics (ONS) in the United Kingdom (UK) witnessed inflation easing in November, from 11.1% to 10.7% YoY, and beneath estimates of 10.9%. Regarding the core Consumer Price Index (CPI), it dropped from 6.5% to 6.3% YoY, though remaining three times higher than the Bank of England’s (BoE) goal.

In the meantime, the Bank of England will reveal its monetary policy decision on Thursday, with most analysts expecting a 50 bps rate increase, which would take the Bank Rate to 3.5%. Therefore, the GBP/USD is trapped between the decision of two central banks, leaving the odds in favor of the more hawkish speech between Jerome Powell and Andrew Bailey.

What to watch

At 18:00 GMT, the Federal Reserve would unveil its last monetary policy decision, followed by the Fed Chair Jerome Powell press conference. On Thursday, the Bank of England will reveal its monetary policy stance.

GBP/USD Price Analysis: Technical outlook

From a daily chart, the GBP/USD remains upward biased, though off the highs of the week reached on Tuesday at 1.2443. The Relative Strength Index (RSI) at bullish territory suggests that buyers remain in charge. However, as it approaches overbought conditions, caution is warranted. The Rate of Change (RoC) edging lower means buying pressure is fading, so mixed signals suggest traders should wait until after the Fed’s decision.

The GBP/USD key resistance levels are 1.2400, the 1.2500 psychological figure, followed by the June 7 daily high of 1.2599. On the downside, the GBP/USD essential supports are 1.2300, followed by the intersection of the 20 and 200-day Exponential Moving Averages (EMAs) around 1.2109/11.