GBP/USD pauses rally as traders eye Fed, BoE's decisions

• US Treasury Secretary to meet Chinese Vice Premier in Switzerland, lifting market sentiment.
• Fed expected to hold rates steady; markets price first cut in July with two more by year-end.
• UK-India trade pact finalized; speculation grows over a potential UK-US agreement amid global tariff shifts.

The Pound Sterling retreated after posting back-to-back days of gains versus the US Dollar. Still, positive news related to a possible de-escalation of the Sino-US tensions lent a lifeline to the Greenback, which remains firm in early trading. At the time of writing, the GBP/USD trades at 1.3360, virtually unchanged.

GBP/USD holds near 1.3360 as easing US-China tensions lift Dollar ahead of Fed decision and BoE meeting

Risk appetite improved in hopes of easing tensions between Beijing and Washington. The US Treasury Secretary Scott Bessent said that he would meet a Chinese delegation led by Vice Premier He Lifeng in Switzerland this weekend.

The trader's focus shifted to the US Federal Reserve (Fed) monetary policy decision at 18:00 GMT. Before the meeting, policymakers expressed that the policy is appropriate to balance the central bank's dual mandate. The swaps markets so far had priced in the first 25 basis points (bps) interest rate cut for the July meeting, and they expect two additional reductions towards the end of the year.

Across the pond, news emerged on Tuesday that the UK and India had agreed to a free trade pact, spurred by US President Donald Trump's enactment of tariffs worldwide.

Analysts suggested that a trade deal between the US and the UK could be announced soon.

Aside from this, investors are watching the Bank of England's (BoE) monetary policy decision on Thursday. The markets had priced in 94 bps of easing, including 25 bps on May 8.

GBP/USD Price Forecast: Technical outlook

From a technical perspective, the GBP/USD consolidated within the 1.3320 - 1.3400 range for the last five trading days amid the lack of a catalyst that could trigger a move outside that area. A hawkish hold by the Fed could drive the pair toward the low 1.33 and pave the way for a breakout below the latter.

In that outcome, the GBP/USD could test the April 23 daily low of 1.3233 ahead of 1.3200. On further weakness, prices could drop all the way toward the 50-day Simple Moving Average (SMA) at 1.3044.

Conversely, if GBP/USD climbs past 1.3400, buyers could test the year-to-date (YTD) high at 1.3443, followed by 1.3450. Once these levels are breached, the next resistance will be 1.3500.