The British Pound (GBP) edged higher against the US Dollar (USD) on Wednesday, with GBP/USD gaining 0.15% as traders positioned ahead of the Federal Reserve’s (Fed) policy announcement. The pair trades around 1.3661, recovering from a daily low of 1.3629, as UK inflation data reinforced expectations that the Bank of England (BoE) will leave rates unchanged on Thursday.
UK inflation reinforces BoE’s cautious stance
August consumer prices rose 3.8% year-on-year, in line with forecasts, while core CPI eased from 3.8% to 3.6%. Both figures aligned with the BoE’s projections, strengthening the case for policymakers to hold the Bank Rate steady at 4%. A Reuters poll showed that economists expect at least one more rate cut in 2025, but not before the central bank confirms inflation is firmly under control.
Fed expected to cut 25 bps, dissent possible
Markets widely expect the Fed to deliver a 25 basis-point (bps) cut later today, bringing the target range down to 4.00%-4.25% and marking the first reduction of 2025. However, unanimity is not guaranteed. Stephen Miran, newly confirmed to the Fed Board, is seen as favoring a more aggressive 50 bps move.
Analysts at TD Securities noted that Fed Chair Jerome Powell is unlikely to commit to a pre-set path of easing. “That means each meeting will remain live, allowing flexibility if inflation shows signs of reacceleration,” they wrote.
Beyond the decision itself, market participants will scrutinize the updated Summary of Economic Projections (SEP) and dot plot to gauge the likely trajectory of rates into 2025 and beyond.
US housing data adds to dovish bias
Earlier in the day, US Housing Starts slumped 8.5% in August, marking the sharpest monthly drop since May. Starts fell from 1.429 million in July to 1.307 million, while Building Permits declined 3.7%. The weakness in housing adds to signs of a cooling economy, reinforcing expectations for further Fed easing.
GBP/USD technical outlook
The technical setup for GBP/USD remains constructive. Immediate resistance is located at 1.3681, the July 4 peak, followed by 1.3700 and the yearly high at 1.3788. A break above 1.3800 would confirm bullish momentum.
On the downside, support is seen at 1.3650, followed by 1.3600 and the September 16 low at 1.3596. Further weakness could expose the 20-day SMA, currently around 1.3516.
