The Pound Sterling drops amid uncertainty over the Fed and theBoE monetary policy meetings.

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• The Pound Sterling drops amid uncertainty over the Fed and theBoE monetary policy meetings.
• The Fed and the BoE are widely expected to leave interest rates unchanged.
• UK business optimism improves due to soft inflation outlook and expectations of upcoming rate cuts.

The Pound Sterling (GBP) remains under pressure on Wednesday’s European morning as markets brace for the US Federal Reserve’s (Fed) monetary policy meeting. Investors see the Fed leaving interest rates unchanged in the range of 5.25%-5.50%, shifting their focus towards any guidance about when the central bank will start cutting interest rates and at which speed. In its last monetary policy meeting, the Fed projected a 75-basis-points (bps) reduction in interest rates in 2024.

The GBP/USD pair trades broadly sideways, but a defined action is expected after the Fed and Bank of England (BoE) announce their first monetary policy decisions of 2024. The BoE is also expected to maintain the status quo for the fourth time in a row. Price pressures in the United Kingdom economy have peaked now, but investors lack confidence about inflation returning to the 2% target in a sustainable manner.

Apart from the Fed decision, market volatility is expected to increase later this Wednesday as investors will focus on the US Automatic Data Processing (ADP) Employment Change data for January. This will be followed by the Institute of Supply Management (ISM) Manufacturing PMI and Nonfarm Payrolls (NFP) data, which will be published on Thursday and Friday, respectively.

Pound Sterling faces a sell-off ahead of the Fed’s interest rate policy. The GBP/USD pair continues to face pressure near the round-level resistance of 1.2700. The Cable has been stuck in a tight range between 1.2640-1.2775 during the last two weeks.

A descending triangle formation is visible on the daily timeframe, which indicates that investors are on the sidelines. The horizontal support of the aforementioned chart pattern is plotted from the December 21 low at 1.2612, while the downward-sloping trendline is placed from the December 28 high at 1.2827. The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a lackluster move ahead.

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