Pound Sterling holds onto gains against US Dollar ahead of Fed-BoE policy outcome

• The Pound Sterling grips gains near 1.3000 against the US Dollar as the DXY Index struggles to hold the five-month.
• Fed officials could project a higher number of interest rate cuts this year.
• The Fed and the BoE are expected to keep interest rates steady on Wednesday and Thursday, respectively.

The Pound Sterling (GBP) clings to gains near the psychological figure of 1.3000 against the US Dollar (USD) in European trading hours on Tuesday. The GBP/USD pair demonstrates strength as the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, struggles to hold the five-month low of 103.20.

The Greenback faces pressure as investors expect Federal Reserve (Fed) officials could guide more interest rate cuts this year when they end the March policy meeting on Wednesday. In December, Fed officials collectively guided two interest rate cuts in 2025.

The Fed is certain to keep interest rates steady in the range of 4.25%-4.50% for the second time in a row. Still, the central bank might turn slightly dovish on the monetary policy outlook amid easing inflationary pressures and deteriorating consumer confidence.

The United States (US) Consumer Price Index (CPI) data for February showed that the core inflation - which excludes volatile food and energy prices - rose by 3.1%, the lowest level seen since April 2021. Meanwhile, the preliminary Michigan Consumer Sentiment Index fell significantly lower at 57.9 in March against estimates of 63.1 and the former reading of 64.7.

Daily digest market movers: Pound Sterling ticks higher ahead of BoE policy decision, UK Employment

• The Pound Sterling is slightly higher against its major peers, with investors focusing on the Bank of England's (BoE) interest rate decision on Thursday. Traders are increasingly confident that the BoE will keep borrowing rates steady at 4.5%, with a 7-2 vote split. 
• BoE Monetary Policy Committee (MPC) members Catherine Mann and Swati Dhingra are expected to support an interest rate cut. Both officials voted for a larger-than-usual interest rate reduction of 50 basis points (bps) in the February policy meeting, while others favored a usual cut of 25 bps.
• Investors will also focus on BoE's guidance on the monetary policy and how much US President Donald Trump-led tariff war could impact the United Kingdom's (UK) economic outlook. Traders expect the BoE to cut interest rates two times more this year as the central bank halved its Gross Domestic Product (GDP) growth forecast for the year to 0.75% in the February policy meeting.
• On Monday, the Organisation for Economic Cooperation and Development (OECD) lowered its British growth forecast for this year to 1.4% from 1.7% projected in December amid global economic uncertainty due to US President Trump's tariff agenda. 
• On Thursday, investors will also focus on the UK labor market data for three months ending January before the BoE's policy meeting.

Technical Analysis: Pound Sterling clings to gains around 1.3000

The Pound Sterling trades firmly near a fresh four-month high around the psychological level of 1.3000 against the US Dollar on Tuesday. The pair established above the 61.8% Fibonacci retracement, plotted from the late September high to the mid-January low, at 1.2930.

The long-term outlook of the GBP/USD pair remains bullish as it holds above the 200-day Exponential Moving Average (EMA), which is around 1.2700.

The 14-day Relative Strength Index (RSI) holds above 60.00, indicating that a strong bullish momentum is intact.

Looking down, the 50% Fibo retracement at 1.2767 and the 38.2% Fibo retracement at 1.2608 will act as key support zones for the pair. On the upside, the October 15 high of 1.3100 will act as a key resistance zone.