GBP/USD holds above 1.2600, all eyes on FOMC Minutes

• GBP/USD holds positive ground around 1.2625 on Wednesday. 
• Investors trim their bets on rate cut expectations from the Federal Reserve (Fed) from May to June meeting. 
• The BoE Governor’s optimistic outlook on the UK economy and policy shifts lifts the British Pound (GBP). 

The GBP/USD pair edges higher above the 1.2600 mark during the early Asian session on Wednesday. The optimistic comments from Bank of England (BoE) Governor Andrew Bailey boosted the Pound Sterling (GBP). The major pair currently trades near 1.2625, unchanged for the day.

Investors lower their bets on the interest rate cuts from the Federal Reserve (Fed) since the US January Producer Price Index (PPI) data last week indicated elevated inflationary pressure in the US economy. The markets expect the first rate cuts from the Fed from the May to June monetary policy meeting. The Federal Reserve Open Market Committee’s (FOMC) minutes for January’s policy meeting could provide some insight into the trajectory of interest rates.

On Tuesday, Bank of England (BoE) Governor Andrew Bailey testified on inflation and the economic outlook. Bailey said he was fine with investors betting on interest rate cuts this year, but he pointed to indicators that the British economy was recovering after going into a recession in late 2023. He also noted that inflation does not need to go below 2% before rate cuts occur and that it is not unrealistic to anticipate a rate decrease this year, but he did not provide a precise timeframe.

Looking ahead, the FOMC Minutes will be in the spotlight on Wednesday, and it might give more insight into why Fed policymakers are not confident enough to begin easing policy in Q1 2024. On Thursday, the preliminary US S&P Global PMI for February will be released. These events might provide a clear direction for the GBP/USD pair.