Pound gains as Fed, BoE decisions loom

The GBPUSD recovered some ground on Wednesday as traders await the Federal Reserve’s monetary policy decision, amid heightened tensions in the Middle East and the release of jobless claims data in the US.

The currency pair was trading at 1.3452, up 0.19%, as the pound sterling gains modestly with traders bracing for central bank updates and soft US housing data.

Markets remained stressed as tensions between Israel and Iran remain high.

Comments from US President Donald Trump suggest an ongoing evaluation of whether Washington will get involved in the conflict or seek a diplomatic exit. The latter seems far from it, as Trump hinted that he had run out of patience.

The US economic docket revealed that Initial Jobless Claims for the week ending June 14 rose by 245,000, as expected by economists. Other data showed that Housing Starts in May came in at 1.256 mln, down from 1.392 mln in April, representing a 9.8% MoM decline. Building Permits also dropped by -2% MoM, down from 1.422 mln to 1.393 mln.

Across the pond, UK inflation in May remained almost unchanged, according to the Office for National Statistics (ONS). The Consumer Price Index (CPI) rose by 3.4% YoY, aligned with forecasts, and core CPI dipped from 3.8% to 3.5% YoY for the same period.

Given the backdrop, markets await the Fed and the Bank of England’s monetary policy decisions.

Both central banks are expected to hold rates unchanged, though in the case of the Fed, traders would scrutinise the update of the economic projections. Additionally, they would scrutinise the dot plot, which only requires that two officials move their dots higher, suggesting a more restrictive monetary policy.

On the BoE’s front, money markets expect the next BoE cut by September, which could be followed by another 25 basis points in December.