GBP/USD snaps the two-day losing streak around the mid-1.2600s

• GBP/USD holds positive ground around the mid-1.2600s amid the USD softness.
• BoE’s Broadbent said the central bank needs to see signs of clearer decline in inflation before it can conclude a downward trend.
• The markets anticipate potential rate cuts worth 75 basis points by the Fed in the second half of 2024.

The GBP/USD pair snaps its two-day losing streak during the early Asian session on Tuesday. The rebound of the pair is bolstered by the weaker US Dollar (USD) and the lower US Treasury bond yields. Investors await the UK inflation data, due on Wednesday. The annual CPI and Core CPI figures are estimated to show an increase of 4.4% YoY and 5.5% YoY in November, respectively. The major pair currently trades near 1.2653, up 0.05% on the day.

The Bank of England (BoE) left the interest unchanged at 5.25% for the third successive meeting while maintaining the view that the cost of borrowing needs to be restrictive for an extended period of time as inflation remains way above its target rate. The BoE Governor Andrew Bailey said that it’s premature to start speculating about cutting interest rates. He further stated that further interest rate hikes were also not ruled out, but we are at the top of the cycle.

Nonetheless, BoE policymaker Ben Broadbent has argued the monetary policy committee will need to see signs of a more protracted and clearer decline in inflation before it can safely conclude a downward trend is taking place.

On the other hand, the Federal Reserve (Fed) delivered a more dovish stance with the anticipation of potential rate cuts worth 75 basis points (bps) in the second half of 2024, whereas the BoE reiterated the tone that the rates should remain higher for longer. This, in turn, weighs on the US Dollar (USD) and creates a tailwind for the GBP/USD pair.

The US Building Permits and Housing Starts will be released on Tuesday. In the absence of economic data released from the UK docket on Tuesday, the GBP/USD pair remains at the mercy of the USD price. Market players will focus on November’s UK Consumer Price Index (CPI) and Producer Price Index (PPI) on Wednesday as well as the US Consumer Confidence (Dec) and Existing Home Sales.