GBP/USD rises as UK inflation supports BoE hold, Fed cut in focus

• GBP/USD climbs as UK inflation holds at 3.8% YoY, with core CPI steady at 3.6%.
• Fed expected to cut 25 bps to 4.00%-4.25%, though dissent possible as Miran pushes 50 bps.
• US Housing Starts plunge -8.5% to lowest since May; BoE expected to hold rates at 4%.

The British Pound advances modestly 0.15% on Wednesday as traders await the outcome of the Federal Reserve's (Fed) monetary policy decision. Nevertheless, Sterling climbs as inflation data in the UK, justifies the Bank of England's (BoE) stance of holding rates on Thursday. The GBP/USD trades at 1.3661 after bouncing off daily lows of 1.3629.

Pound gains 0.15% as traders eye Fed's 25 bps cut and dot plot guidance

Later, the Fed is expected to reduce rates by 25 basis points (bps) to the 4.00%-4.25% range as expected by analysts. The decision is not expected to be unanimous, as Trump's appointee Stephen Miran could push for a 50-basis point cut.

TD Securities on a note said that Powell "is unlikely to commit to the future path of rate cuts," which would mean that subsequent meetings would be live, keeping the Fed options open in the event of a reacceleration of inflation.

Market participants will also review the updated Summary of Economic Projections (SEP) and the "dot plot" for insight into the future of interest rate's path.

Earlier, US Housing Starts in August fell, hitting its lowest level since May. Starts plunged -8.5% MoM after an increase of 5.2% in July, dropped from 1.428 million to 1.307 million. Building Permits also decreased by -3.7%.

Across the pond, August's inflation in the UK came aligned with estimates at 3.8% YoY. Core CPI cooled from 3.8% to 3.6% YoY, and both reported readings were aligned with the BoE's latest projections. This data cemented the case for the BoE to hold rates unchanged at 4% on Thursday. Nevertheless, a Reuters poll revealed that economists expect at least one more reduction in 2025.

Fed interest rates probability tool

Source: Prime Market Terminal

GBP/USD Price Forecast: Technical outlook

The GBP/USD technical picture remains bullish, though traders will face key resistance at 1.3681, the July 4 peak. A breach of the latter will expose the 1.3700 figure, ahead of challenging the yearly peak at 1.3788. Overhead lies 1.3800.

Conversely, if GBP/USD drops below1.3650, sellers could drive prices towards 1.3600, and test the September 16 low at 1.3592. On further weakness, the 20-day SMA could be tested at 1.3516.