GBP/USD edges lower to near 1.2580 on improved US Dollar, UK PMI, FOMC minutes awaited

• GBP/USD continues to lose ground as US Dollar snaps its losing streak.
• Higher US Treasury yields support the Greenback to gain ground.
• Traders await PMI data release from the United Kingdom on Thursday.

GBP/USD continues to remain in the negative territory, trading around 1.2580 during the Asian session on Tuesday. The strength of the US Dollar (USD) could be attributed to the improved US Treasury yields, which in turn, weighs on the GBP/USD pair. Traders are awaiting meeting minutes from the Federal Open Market Committee (FOMC) scheduled for Wednesday.

The US Dollar Index (DXY) edges higher as the market returns from a holiday-extended weekend, snapping its four-day losing streak. The DXY trades higher around 104.40 with 2-year and 10-year yields on US bond coupons standing at 4.65% and 4.30%, respectively, by the press time.

Moreover, ANZ expects that the Federal Reserve (Fed) will initiate rate cuts starting from July 2024. According to the CME FedWatch Tool, there is a 53% possibility of a 25 basis points rate cut by the US Fed in the June meeting. The recent remarks from the Fed officials considering the rate cuts sooner undermined the US Dollar.

San Francisco Federal Reserve President Mary C. Daly mentioned that three rate cuts are a reasonable baseline for 2024. Additionally, St. Louis Federal Reserve (Fed) president, James Bullard suggested Federal Reserve consider lowering interest rates at its March meeting.

The Bank of England (BoE) is expected to maintain interest rates at their current level to address persistent consumer prices in the United Kingdom (UK). Strong consumer spending adds complexity for policymakers at the Bank of England (BoE) as they navigate a technical recession and higher inflation amidst elevated interest rates.

Traders are likely to closely monitor the upcoming S&P Global/CIPS Purchasing Managers Index (PMI) data on Thursday to gain further insights into the UK’s economic landscape. The Services PMI is anticipated to show a slight moderation in February but is expected to remain above the 50 mark, indicating expansion. Meanwhile, the Manufacturing sector could demonstrate a slight improvement.