Sterling holds ground on weaker dollar, Fed rate decision looms

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The GBPUSD pair is holding positive ground near 1.2520 in early trading in Asia on Monday. The uptick of the major pair is supported by the softer US Dollar below the 106.00 psychological mark.

Investors will closely monitor the Federal Open Market Committee (FOMC) interest rate decision and Press Conference on Wednesday.

The US Federal Reserve is expected to leave the interest rate unchanged in its current 5.25-5.5% range on Wednesday. The US economy remains strong, and inflation has started to turn higher.

On Friday, the US Bureau of Economic Analysis showed the Core Personal Consumption Expenditures (PCE) Price Index rose 2.8% YoY in March. These reports have triggered speculation that the first cut might not come until September.

The Fed policymakers noted that rate cuts are not coming in the next several months as inflation was stickier than expected and remains above the Fed’s 2% target.

The higher-for-longer stance from the US central bank might provide some support to the greenback and cap the downside of the GBPUSD pair.

On the other hand, investors are raising their bets that the Bank of England will start lowering borrowing costs in its June meeting.

BoE Governor Andrew Bailey said during the press conference after the last monetary policy meeting that two or three rate cuts this year are not “unreasonable.”

A dovish shift in the BoE remarks might lead to a weaker Pound Sterling (GBP) and create a headwind for the pair.

(Source: OANDA)