The British Pound (GBP) edged higher against the US Dollar (USD) on Monday, with GBP/USD trading near 1.3555 in the Asian session. The move comes as traders brace for the US Federal Reserve’s (Fed) policy meeting this week, where markets widely expect the central bank to deliver its first rate cut of the year.
Later in the day, the focus will turn to the release of the New York Empire State Manufacturing Index for September, which could provide fresh clues about US economic momentum.
Fed in focus
Market expectations for a rate cut are fully priced in. According to the CME FedWatch tool, traders see nearly a 100% probability that the Fed will reduce rates by 25 basis points on Wednesday. A small minority continues to bet on a larger 50-basis-point move.
Fed officials, including Chair Jerome Powell, have repeatedly emphasized a data-dependent approach. This places heightened importance on the Summary of Economic Projections (SEP), which will outline policymakers’ economic forecasts and their projected rate path. Any dovish tone from Powell could put additional pressure on the Greenback and support GBP/USD.
UK outlook weighs on Sterling
While the Fed outlook supports GBP gains, domestic fundamentals remain a drag. Weak UK GDP and factory output figures for July have renewed concerns about the growth outlook, keeping the Pound vulnerable.
Markets are now pricing in roughly a 33% chance that the Bank of England (BoE) will cut rates once more before year-end, according to Reuters. Expectations of further policy easing could limit Sterling’s upside in the near term.
