GBP/USD advances above 1.2630 on Fed dovish tone, eyes on BoE rate decision

• GBP/USD trades in positive territory for the fourth consecutive day above the 1.2600 mark.
• The Federal Reserve (Fed) kept the interest rates steady at the target range of 5.25%-5.5% in its December meeting.
• The UK’s economy contracted 0.3% MoM in October vs. 0.2% expansion prior, below the market expectation.
• Investors will closely watch the BoE interest rate decision ahead of US Retail Sales.

The GBP/USD pair surges to one-week highs above the 1.2600 mark during the early Asian trading hours on Thursday. The uptick of the pair is bolstered by the weaker US Dollar (USD) and the dovish comments after the Federal Reserve (Fed) meeting. Investors await the Bank of England monetary policy meeting, with no change in interest rate expected. The major pair currently trades near 1.2634, losing 0.06% on the day.

On Wednesday, the Fed kept the interest rates steady at the target range of 5.25%-5.5% in its December meeting. Fed Chair Jerome Powell said discussion about cutting rates is still ahead and the central will decide very carefully. Powell further stated that the Fed is very focused on not making the mistake of keeping rates too high for too long. That being said, these dovish remarks exert some selling pressure on the Greenback and lift the GBP/USD pair.

The UK’s economy contracted 0.3% MoM in October from 0.2% expansion in the previous reading, below the market consensus of 0.1% drop, the Office for National Statistics showed on Wednesday.

Analysts anticipate that the negative growth data will cement Thursday’s BOE expected hold on rates, but might raise the odds of rate cutting sooner in 2024 as the Bank seeks to avoid sending the economy into recession. The BoE is widely expected to maintain the bank rate at 5.25% on Thursday.

The BoE interest rate decision will the the highlight on Thursday. Later in the day, the US Jobless Claims and the Retail Sales will be due. On Friday, the S&P Global PMI reports from the UK and US will be released. Traders will take cues from these events and find trading opportunities around the GBP/USD pair.