GBP/USD clings to gains above 1.2500 as Fed/BOE expectations play out

• GBP/USD off the highs but strongly bid above 1.2500 amid USD pullback.
• Probability of a larger BOE rate hike has risen but not that much for the Fed.
• Markets remain cautious heading into the Fed and BOE policy meetings.

GBP/USD has stalled its rebound near 1.2560 but remains strongly bid above 1.2500, mainly driven by Fed and BOE expectations.

The latest uptick in the US dollar across the board has fuelled a bout of fresh selling in cable, as investors move back to the safe-haven greenback amid increased anxiety heading into the critical Fed and BOE policy announcements due later this week.

Despite the retreat from higher levels, GBP/USD sustains a part of the recovery gains on increasingly hawkish expectations from the BOE following the RBA surprise rate hike of 25 bps.

The probability of a larger than expected 50 bps hike from the BoE on Thursday has risen to 30%, according to a Refinitiv measure based on interest rate futures. In contrast, there is only a 6% chance of the Fed raising rates by 75 bps this week.

The Fed’s guidance on the future course of monetary policy, however, could underscore the divergence between the Fed and BOE, reviving the selling interest around the pair.

Meanwhile, traders await the US Factory Orders and JOLTS job openings for fresh trading opportunities in cable.

GBP/USD technical levels to watch