GBP/USD steadies around 1.2730 amid cautious market sentiment ahead of the Federal Reserve’s decision.

The pair attempts to recover from recent losses despite a sense of caution among traders. This caution comes as investors await the upcoming interest rate decision from the Federal Reserve, scheduled for Wednesday.

As measured by the Dollar Index (DXY), the US Dollar initially strengthened due to rising US Treasury yields on Friday. This yield boost was driven by expectations that the Federal Reserve would maintain its current interest rate stance in response to recent inflationary pressures. However, the US Dollar faced downward pressure as Treasury yields retreated.

Market sentiment regarding potential rate cuts has shifted slightly. According to the CME FedWatch Tool, the probability of a rate cut in March is currently low, at 1.0%. Expectations for rate cuts in May, June, and July have also decreased.

Friday’s economic data showed mixed results. The preliminary US Michigan Consumer Sentiment Index for March declined unexpectedly, while Industrial Production for February exceeded expectations. Meanwhile, in the UK, Consumer Inflation Expectations rose slightly, prompting speculation about a potential rate cut by the Bank of England in June.

On Monday, March’s Rightmove House Price Index significantly increased, indicating strength in the housing market. Looking ahead to Tuesday, traders will focus on crucial UK economic indicators, including the Consumer Price Index, Producer Price Index, and Retail Price Index.

GBP/USD