The GBP/USD pair edged higher during the Asian session on Wednesday, trading around 1.3350 after recovering from two consecutive days of losses. The pair advanced as the US Dollar (USD) weakened following dovish remarks from Federal Reserve (Fed) officials, which reinforced market expectations for further monetary easing later this year.
Fed’s Powell reinforces dovish policy outlook
The greenback came under renewed pressure after Fed Chair Jerome Powell stated on Tuesday that the central bank remains on track to deliver another 25-basis-point rate cut in October, despite ongoing challenges posed by the US government shutdown. Powell also highlighted the slowdown in hiring, suggesting that labor market conditions may deteriorate further.
According to the CME FedWatch Tool, markets are now pricing in a 94% probability of a rate cut in October and a 93% likelihood of another reduction in December.
Fed officials signal caution ahead of upcoming decisions
While Powell’s comments strengthened the case for policy easing, other Fed officials adopted a more balanced stance. Boston Fed President Susan Collins noted that monetary policy is not on a preset path and that interest rates could remain steady if economic data hold firm. She emphasized that even with additional easing, policy would remain restrictive.
Investors will closely monitor remarks from Fed officials Stephen Miran, Christopher Waller, and Jeff Schmid later in the day for further guidance on the policy trajectory.
UK labor market weakness limits pound’s upside
Despite near-term gains, the British Pound (GBP) could face headwinds as signs of a cooling UK labor market have increased expectations of more rate cuts by the Bank of England (BoE) before year-end. According to Reuters, markets currently anticipate around 46 basis points of additional easing from the BoE in 2025.
Soft labor data has raised concerns about the sustainability of UK growth, potentially capping further upside in GBP/USD despite broad-based USD weakness.
