GBP/USD oscillates around the 1.2900 mark ahead of FOMC
GBP/USD remains confined in a narrow range near the 1.2900 area heading into the European session. Economists anticipate a rate hike by the Bank of England (BoE) to 5.25% in the next meeting. Investors will watch the Federal Open Market Committee's (FOMC) meeting and the press conference.
The GBP/USD pair oscillates around the 1.2875–1.2905 region in a narrow trading band heading into the European trading hours. The major pair struggles to gain as traders prefer to wait on the sidelines ahead of the Federal Open Market Committee's (FOMC) meeting scheduled later in the day. GBP/USD currently trades at 1.2901, down 0.01% for the day.
The data released earlier this week showed that economic activity in the United Kingdom was weaker than estimated. The Manufacturing PMI for July fell to 45.0 from 46.5 observed in June, worse than expected at 46.1. This figure registered the 12th straight contraction in the manufacturing sector. Meanwhile, the preliminary Services PMI declined to 51.5 from 53.0 prior and 53.7 expected.
In June, the Bank of England (BoE) unexpectedly raised its Bank Rate by 50 basis points (bps) to 5.00%, prompting markets to rapidly price in a terminal rate of 6.50%. The additional rate hike from the BoE exacerbates concerns about the Bank's most aggressive rate hikes in three decades and their impact on the UK’s economy, which exert pressure on the Pound Sterling.
However, the latest Reuters poll showed that 42 out of 62 economists anticipate that the Bank Rate will be raised by 25 bps to 5.25% in the upcoming BoE meeting scheduled for August 3, while only 20 predicted a half-point hike.
On the US dollar Front, the Federal Reserve (Fed) is scheduled to announce its monetary decision later in the North American session. The Fed is widely anticipated to raise interest rates by 25 bps to 5.25–5.50%. Market participants will also be paying close attention to Fed Chairman Jerome Powell's press conference as it might reveal some clues about the direction of monetary policy going forward. A more dovish stance from the Fed might cap the upside for the Greenback and act as a tailwind for the GBP/USD pair.
In the absence of top-tier economic data released from the United Kingdom, the USD's valuation is likely to continue to influence the pair's movement. Market participants will keep an eye on the FOMC meeting and Fed Chairman Jerome Powell's press conference. Apart from this, traders will take cues from the US Advance GDP QoQ and the core Personal Consumption Expenditure (PCE) Price Index MoM later this week. These data could significantly impact the US Dollar's dynamic and give the GBP/USD pair a clear direction.