GBP/USD refreshes daily high amid post-ADP USD downtick, focus remains on FOMC

The GBP/USD pair rose to a fresh daily high around the 1.2535 region, during the early North American session on Wednesday after a dismal US ADP report weakened the US dollar.

The report by Automatic Data Processing (ADP) showed that US private-sector employers added 247K new jobs in April. This missed consensus estimate pointing to the 395K increase, though was largely offset by an upward revision of the previous month's reading to 479K from the 455K reported earlier.

The pair has now rallied nearly 70 pips from the weekly low of 1.2465, touched earlier this Wednesday amid modest US dollar weakness. Given that the Fed's anticipated move to hike interest rates is already priced in, indications of a positive opening in the US equity markets undermined the safe-haven greenback.

Apart from this, the prospects for a more aggressive policy tightening should act as a tailwind for the buck and keep a lid on any further gains for the GBP/USD pair. Investors seem convinced that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. Hence, the focus will remain on the outcome of a two-day FOMC meeting.

The Fed is widely expected to hike benchmark interest rates by 50 bps and lay plans to start shrinking its massive, a near $9 trillion balance sheet. Investors, however, will scrutinize Fed Chair Jerome Powell's comments to see if the US central bank is ready to continue with its policy tightening and hike interest rates further even if the economy weakens.

This will play a key role in influencing near-term USD price dynamics and provide some meaningful impetus to the GBP/USD pair ahead of the Bank of England policy meeting on Thursday. The combination of key central bank event risks warrants some caution for aggressive traders when considering how to position for a firm near-term direction.

Technical levels to watch