Pound Sterling faces pressure ahead of monetary policies by the Fed and the BoE.

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• Pound Sterling faces pressure ahead of monetary policies by the Fed and the BoE.
• BoE policymakers will be tested on the grounds of high inflation and bleak economic outlook.
• The Fed is expected to define how it will fit 75 basis points rate reduction in 2024.

The Pound Sterling (GBP) drops as investors turn cautious ahead of a busy week. The GBP/USD pair falls gradually ahead of the interest rate decisions by the Bank of England (BoE) and the Federal Reserve (Fed), which are expected to leave rates unchanged for the fourth time in a row.

While the BoE is expected to hold steady, guidance on the interest rate outlook will be the key factor for further action in the Pound Sterling. The BoE is in a balancing act between vulnerable economic conditions in the domestic and the overseas market and stubborn price pressures. The maintenance of higher interest rates for a longer period by the BoE could dampen labor market and demand conditions while a dovish signal will ramp-up price pressures again.

Market mood seems broadly cautious due to Middle East tensions and Fed’s monetary policy announcement. Investors will keenly watch whether the Fed will choose the March or May meeting for the first rate cut after a prolonged “rate-tightening” campaign.

Pound Sterling remains topsy-turvy near the crucial resistance of 1.2700 ahead of crucial economic events. On a daily time frame, the GBP/USD pair demonstrates a Descending Triangle chart pattern formation, which indicates a sharp volatility contraction but with an upside bias.

Downward-sloping trendline of the aforementioned chart pattern is drawn from 28 December 2023 high at 1.2827 while the horizontal support is plotted from 21 December 2023 low at 1.2612. The 14-period Relative Strength Index (RSI) oscillates in the 40-60 range, which indicates a sideways performance ahead.

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