GBP/USD remains inside the woods around 1.2050 as investors await FOMC minutes

• GBP/USD is awaiting the release of the Fed minutes for a decisive move.
• Rising demand for US government bonds is weighing on the US Dollar Index.
• A consecutive shrink in US Manufacturing PMI is showing signs of a further slowdown in the price index.

The GBP/USD pair has continued its sideways performance around 1.2050 as investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes for fresh cues. The Cable asset displayed a wild gyration after the United States Institute of Supply Management (ISM) reported a shrink in the volume of manufacturing activities consecutively for the second time and then continued to auction sideways.

A decent recovery move in S&P500 on Wednesday after a two-day sell-off signifies that the risk appetite of the market participants has increased significantly. The US Dollar Index (DXY) dropped below the crucial support of 104.00 as the return on 10-year US Treasury bonds faced immense pressure. The 10-year US Treasury yields slipped to near 3.69% as a decline in Manufacturing PMI has been added to filters that call for a slowdown in the pace of policy tightening by the Federal Reserve (Fed).

On Wednesday, the US ISM Manufacturing PMI declined to 48.4 vs. the consensus of 48.5 and the former release of 49.0. A consecutive shrink in the extent of manufacturing activities is the outcome of higher interest rates by the Fed, which has forced firms to avoid debts due to higher interest obligations. Apart from that, New Order Index that indicates forward demand has dropped dramatically to 45.2. While the street was expecting a jump in the economic data to 48.1 from the prior release of 47.2.

For a decisive move, investors are awaiting the release of the Fed’s minutes for the December meeting, which will provide a detailed explanation of the policy outlook for CY2023. Fed chair Jerome Powell in a December policy meeting announced that interest rates will top above 5% and higher interest rates will be continued for a longer period to tame stubborn inflation.

On the United Kingdom front, A monthly survey conducted by Citi and YouGov revealed on Wednesday that the British public's inflation expectations for 12 months ahead declined to 5.7% in December from 6.1% in the previous survey, as reported by Reuters. This is going to provide support to the Bank of England (BOE) which is worried about roaring inflation.