Fundamental Overview

GBP/USD reversed its direction after dipping below 1.2700 on Wednesday and closed the day decisively higher, supported by the broad-based selling pressure surrounding the US Dollar (USD). The pair stays in a consolidation phase slightly below 1.2800 as markets await the Bank of England's (BoE) policy announcements.

The Federal Reserve (Fed) announced late Wednesday that it held the policy rate steady at 5.25%-5.5% in a widely anticipated move. The revised Summary of Economic Projections, also known as the dot plot, showed that policymakers were still forecasting a 75 basis point (bps) reduction in the policy rate in 2024, the same as they did in December.

The probability of the Fed leaving the policy rate unchanged in June declined to 25% from 40% before the Fed event, according to the CME FedWatch Tool.

In the post-meeting press conference, Fed Chairman Jerome Powell downplayed the stronger-than-forecast inflation readings and opened the door to an extended USD selloff.

Powell acknowledged that inflation numbers were "quite high" in January and February but said that they have not changed the overall story on disinflation, explaining that they were higher due to seasonal effects.

The BoE is also forecast to maintain the interest rate at 5.25%. Since there will not be a press conference following the announcement of policy decisions, investors will pay close attention to changes in the statement language. market participants are yet to decide on the timing of the BoE policy pivot but in case the BoE opens the door for a rate reduction this summer, the initial reaction could cause Pound Sterling to weaken against its rivals.

Later in the day, the US economic docket will feature the weekly Initial Jobless Claims and S&P Global's preliminary Manufacturing and Services PMI data for March. In the meantime, US stock index futures are up between 0.4% and 0.9%. Unless the data cause the market mood to sour, a continuation of the risk rally after the Wall Street's opening bell could force the USD to stay on the back foot.