GBP/USD languishes near multi-month low, consolidates in a range below 1.2400 mark

• GBP/USD continues with its struggle to register any meaningful recovery from a multi-month low.
• Expectations that the BoE is nearing the end of its rate-hiking cycle act as a headwind for the pair.
• Subdued USD price action helps limit the downside ahead of FOMC and BoE meetings this week.

The GBP/USD pair extends its consolidative price moves for the second successive day on Tuesday and remains confined in a range below the 1.2400 mark during the Asian session. Spot prices, meanwhile, languish near the lowest level since June touched last week and the lack of buying interest suggests that the path of least resistance is to the downside.

The British Pound (GBP) continues with its relative underperformance in the wake of diminishing odds for more aggressive policy tightening by the Bank of England (BoE), though subdued US Dollar (USD) demand lends some support to the GBP/USD pair. BoE Governor Andrew Bailey had told lawmakers recently that the central bank is now "much nearer" to ending its run of interest rate increases. This, along with reviving recession fears and signs that the UK labour market is cooling, might put pressure on the BoE to pause its rate-hiking cycle.

The USD, on the other hand, remains on the defensive below a more than six-month peak set last week and turns out to be a key factor holding back traders from placing fresh bearish bets around the GBP/USD pair. Traders also seem reluctant and prefer to wait on the sidelines ahead of this week's key central bank event risks – the highly-anticipated FOMC monetary policy decision on Wednesday and the BoE meeting on Thursday. The Federal Reserve (Fed) is widely expected to leave interest rates unchanged at the end of a two-day policy meeting.

Market participants, however, seem convinced that the US central bank will stick to its hawkish stance and have been pricing in the possibility of one more 25 bps lift-off by the end of this year. Hence, the focus will be the Fed's so-called ‘dot plot’ and inflation expectations. Apart from this, investors will closely scrutinise Fed Chair Jerome Powell's remarks at the post-meeting press conference for cues about the future rate-hike path. This, in turn, will influence the near-term USD price dynamics and provide some meaningful impetus to the GBP/USD pair.

The attention will then turn to the pivotal BoE decision on Thursday. The UK central bank is all but certain to raise its benchmark interest rates by 25 bps to 5.5%, which would mark the highest level since 2007. Financial markets, however, hold the view that the streak of rises in borrowing costs since December 2021 is in its last days. This might continue to undermine the Streling. Apart from this, elevated US bond yields should act as a tailwind for the Greenback and contribute to keeping a lid on any meaningful recovery move for the GBP/USD pair.

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