GBP/USD climbs as Fed-BoE policy divergence favors Sterling

• GBP/USD rebounds from 1.3548 low to 1.3586 as Fed cut odds stand at 94% for 25 bps move.
• UK inflation remains near 4% ahead of employment and CPI data, limiting BoE scope to ease policy.
• Policy divergence seen boosting Sterling, with BoE expected to hold rates steady while Fed resumes easing cycle.

The Pound Sterling advances during the North American session as traders are set to digest monetary policy meetings by major central banks across the Atlantic. Expectations for the first rate cut by the Fed in nine months, and the Bank of England (BoE) keeping rates unchanged, would likely underpin the British currency.

GBP/USD trades at 1.3586 up 0.22% after bouncing off daily lows of 1.3548 at the time of writing.

Pound gains as traders price Fed cut and expect BoE to hold, narrowing interest rate differential

The Federal Reserve is expected to reduce rates by 25 basis points in a meeting that starts on Tuesday and ends with the central bank's decision, update to its economic projections and the Fed Chair Jerome Powell press conference. Unless there is a surprise, money market players had priced in a 94% chance of a quarter percentage cut, while there is a slim chance of 6% for a big size cut.

Regarding the UK, a busy economic docket will feature employment data on Tuesday, CPI on Wednesday ahead of the BoE's decision on Thursday. Inflation in the UK had failed to ease, it is closing to the 4% threshold and warrants further tightening by the UK central bank.

Therefore, a reduction in the interest rate difference between the US and the UK, would favor further upside in the GBP/USD pair.

GBP/USD Price Forecast: Technical outlook

The GBP/USD remains upward biased, after hitting a the week highs at 1.3620, though buyers must achieve a daily close above 1.3600 to pave the way for further upside. The next key resistance levels would be the July 4 high at 1.3681, ahead of 1.3700. A breach of the latter will expose the July 1 high at 1.3788.

On the flip side, if GBP/USD struggles at 1.3600, the pair could be poised to challenge 1.3550. On further weakness, a test of the 20-day SMA at 1.3497 is on the cards.