• The Pound Sterling drops amid uncertainty over the Fed and theBoE monetary policy meetings.
• The Fed and the BoE are widely expected to leave interest rates unchanged.
• UK business optimism improves due to soft inflation outlook and expectations of upcoming rate cuts.

The Pound Sterling (GBP) remains under pressure on Wednesday’s European morning as markets brace for the US Federal Reserve’s (Fed) monetary policy meeting. Investors see the Fed leaving interest rates unchanged in the range of 5.25%-5.50%, shifting their focus towards any  guidance about when the central bank will start cutting interest rates and at which speed. In its last monetary policy meeting, the Fed projected a 75-basis-points (bps) reduction in interest rates in 2024.

The GBP/USD pair trades broadly sideways, but a defined action is expected after the Fed and Bank of England (BoE) announce their first monetary policy decisions of 2024. The BoE is also expected to maintain the status quo for the fourth time in a row. Price pressures in the United Kingdom economy have peaked now, but  investors lack confidence about inflation returning to the 2% target in a sustainable manner.

Apart from the Fed decision, market volatility is expected to increase later this Wednesday as investors will focus on the US Automatic Data Processing (ADP) Employment Change data for January. This will be followed by the Institute of Supply Management (ISM) Manufacturing PMI and Nonfarm Payrolls (NFP) data, which will be published on Thursday and Friday, respectively