After ending the previous two trading days in the green on Tuesday, GBP/USD has edged lower in early Wednesday trading, hovering near the 1.2700 level as investors await the Federal Reserve’s (Fed) upcoming monetary policy decision.
In the European morning, the UK’s Office for National Statistics reported that annual inflation, as measured by the Consumer Price Index (CPI), rose to 2.6% in November from 2.3% in October—matching expectations. Meanwhile, core CPI increased by 3.5% year-over-year, up from 3.3% in October but falling short of the 3.6% forecast. Despite these inflation figures, market reaction remained muted.
The Fed is widely expected to implement a 25 basis point (bps) rate cut during its final meeting of the year, reducing the policy rate to the 4.25%-4.5% range. Since this rate move is already priced into markets, it is unlikely to have a significant impact on the US Dollar (USD). Investors are focusing instead on the updated Summary of Economic Projections (SEP), or “dot plot,” for further insights.
If the dot plot indicates that policymakers anticipate a rate reduction of at least 100 bps in 2025, the USD could face reduced demand. Conversely, if the SEP suggests a smaller rate cut, GBP/USD could come under pressure.
Federal reserve’s Chairman Jerome Powell will present the policy statement and participate in a press conference. If Powell highlights growing uncertainty regarding inflation trends or potential tariff developments, investors may interpret this as a sign the Fed will adopt a more cautious approach to easing, potentially strengthening the USD.
