GBP/USD Languishes Close To a Multi-Month Low And Consolidates In a Range Below 1.2400

During the Asian session on Tuesday, the GBP/USD pair extends its consolidation for the second consecutive day and remains contained within a range below the 1.2400 level. Spot prices are languishing close to their lowest level since June, which was reached last week, and the lack of buying interest indicates that the path of least resistance is to the downside.

The British Pound (GBP) continues to underperform in the aftermath of diminishing odds for more aggressive policy tightening by the Bank of England (BoE), but the GBP/USD pair receives some support from subdued US Dollar (USD) demand. BoE Governor Andrew Bailey had told lawmakers recently that the central bank is now "much nearer" to ending its series of interest rate increases. This, along with resurgent recession concerns and indications of a softening UK labour market, could put pressure on the BoE to pause its rate-hiking cycle.

The USD, on the other hand, remains on the defensive below a six-month high set last week, which is a major factor preventing traders from placing fresh bearish wagers on the GBP/USD pair. Prior to this week's key central bank event risks – the highly anticipated FOMC monetary policy decision on Wednesday and the BoE meeting on Thursday – traders appear reluctant and prefer to remain on the sidelines. The Federal Reserve (Fed) is widely anticipated to maintain current interest rates at the conclusion of a two-day policy meeting.

However, market participants appear confident that the US central bank will maintain its hawkish posture and have priced in the possibility of a further 25-bps rate hike by the end of the year. The Fed's so-called "dot plot" and inflation expectations will therefore be the primary focus. In addition, investors will scrutinise Fed Chair Jerome Powell's remarks at the post-meeting press conference for hints about the future rate-hike trajectory. This will impact the near-term USD price dynamics and provide significant impetus for the GBP/USD pair.

The focus will then shift to Thursday's decisive BoE decision. It is almost certain that the United Kingdom's central bank will raise its benchmark interest rate by 25 basis points to 5.5%, which would be the highest level since 2007. The financial markets believe that the string of increases in borrowing costs since December 2021 is about to end. This could further undermine the Streling. Apart from this, elevated US bond yields should act as a tailwind for the Greenback and contribute to maintaining a lid on any meaningful recovery move for the GBP/USD pair.