GBP/USD follows the downward path near 1.2320, focus on BoE policy decision

• GBP/USD extends its losses on the second successive day on the Fed's hawkish tone.
• Fed revised the projected interest rates for 2024, elevating them from 4.6% to 5.1%.
• The market expects an imminent halt in the BoE’s interest rate-hike cycle due to UK soft data on Wednesday.

GBP/USD expands losses on the second successive day, trading lower around 1.2320 during the Asian session on Thursday. US Federal Reserve’s (Fed) hawkish stance exerts downward pressure on the pair.

As anticipated, the Fed chose to keep the existing benchmark policy rates unchanged at 5.5% during the meeting held on Wednesday.

The central bank is expected to attempt an additional rate hike in 2023, following the Federal Open Market Committee’s (FOMC) expectation for slightly elevated inflation compared to its previous forecasts.

Therefore, Fed officials unexpectedly revised their projected interest rates for 2024, increasing them from 4.6% to 5.1%, which contributes to the support in underpinning the US Dollar (USD).

US Dollar Index (DXY), which gauges the performance of the Greenback against the six other major currencies, extends its gains and trades a six-month high of around 105.50 at the time of writing. Additionally, Higher US Treasury yields help the buck to rise.

The yield on 10-year US note rose to 4.43% by the press time, the highest since 2007.

Furthermore, during a press conference held immediately after the rate decision, Federal Reserve Chair Jerome Powell reiterated the Fed's dedication to achieving its long-term inflation target of 2%.

Powell indicated that the central bank is probably nearing the apex of its interest rate hike cycle, yet he underscored that forthcoming policy determination would hinge on data-driven analysis.

On the GBP side, the anticipation of an imminent halt in the Bank of England's (BoE) cycle of raising interest rates continues to exert downward pressure on the British Pound, causing the GBP/USD pair to decline.

Market sentiment experienced a significant shift following the release of UK data on Wednesday, which showed that the annual headline Consumer Price Index (CPI) dropped to 6.7% in August from 6.8% in July, contradicting the consensus forecast of an increase to 7.1%.

Moreover, the core CPI registered at 6.2% for the 12 months ending in August, down from 6.9% in July. These developments occurred alongside resurfacing concerns of a potential economic downturn and signs of a cooling labor market in the UK, aligning with market expectations.

Consequently, the focal point will remain fixed on the eagerly awaited policy decision by the Bank of England, set to be announced later in the day.

Investors will likely watch the upcoming data release from the United States (US) due on Thursday, including the weekly Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, and Existing Home Sales Change.