GBP/USD holds ground above the 1.2600 mark on softer US Dollar

• GBP/USD gains traction for the second consecutive day around 1.2608 on Wednesday. 
• The expectation of interest rate cuts from the Federal Reserve (Fed) has waned due to the stronger-than-expected US economic data. 
• The potential technical recession in the UK economy might lead Bank of England (BoE) officials to shift to a dovish interest rate stance.

The GBP/USD pair trades on a stronger note amid the US Dollar’s (USD) weakness during the early Asian trading hours on Wednesday. The rebound of the major pair is supported by the softer Greenback and lower US Treasury bond yields. At press time, GBP/USD is trading at 1.2608, adding 0.06% on the day. 

The expectation of interest rate cuts from the Federal Reserve (Fed) has waned as US economic data came in better than expected. Additionally, Fed Chair Jerome Powell said on Sunday that it would not be appropriate to cut rates until there was greater confidence that inflation is moving to 2%. The markets are now pricing in a 15% possibility of rate cuts in March and priced in 50% odds of rate cuts in the May meeting. This, in turn, lifts the US Dollar (USD) and acts as a headwind for GBP/USD. 

On the Pound Sterling (GBP) front, the GBP is at risk of a technical recession, which might lead Bank of England officials to shift to a dovish interest rate stance. The Bank of England (BoE) Chief Economist Huw Pill said on Monday that the question now for most of the central bank’s policymakers was when it would be appropriate to start to cut interest rates, not if. Meanwhile, Governor Andrew Bailey said that inflation was moving in the right direction and that the BoE would keep borrowing costs under review. 

On Wednesday, the UK Halifax House Prices for January and the US Goods Trade Balance for December will be due. Market players will keep an eye on the Fedspeaks this week for fresh impetus. These events could give a clear direction to the pair.