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GBP/USD drops below 1.2950 ahead of the Fed rate decision

• Fed is expected to leave rates at 4.25% - 4.5%
• Fed Powell’s comments, Fed projections & the dot plot will be the focus
• BoE rate decision is tomorrow
• GBP/USD pulls away from 1.30

GBP/USD has fallen away from 1.30, dropping below 1.2950 amid renewed USD strength and as investors look ahead to the Fed rate decision.

The Fed will announce its rate decision at 18:00 GMT, and that's why they expected to leave interest rates unchanged in the range of 4.25 to 4.5% for this second meeting in a row. As a result, the focus will be on Fed Powell’s speech, updated economic projections, and the Fed's dot plot, which shows where policymakers see interest rates heading in the medium to long term.

This will provide clues about how the Fed sees Trump's trade policies impacting the US economy. We are expecting a slight upward revision to inflation expectations and a downward revision to growth. Currently, CPI is at 2.8%, and core CPI eased to 3.1%, its lowest level since April 2021.

The Fed will likely emphasize patience amid an uncertain outlook, supporting a wait-and-see stance. However, a dovish-sounding Fed could add to US recession worries, pulling the USD lower.

The pound is trading cautiously against its major pairs ahead of tomorrow's labour market data, followed by the Bank of England interest rate decision. The market will watch average earnings, a key measure of wage growth that has contributed significantly to high inflation in the service sector. Firms are slowing the pace of hiring and are cautious ahead of the increase in the minimum wage and higher employer tax burden from April.

The BoE is expected to leave rates unchanged at 4.5%. Given Trump's trade policies, attention will be on Governor Bailey’s outlook.
 

GBP/USD forecast – technical analysis

GBP/USD has exceeded its rally from the 2025 1.21 low into resistance at 1.30. This psychological level could prove tough to crack, particularly given that the RSI is in and out of overbought territory.

A period of consolidation here or even a pullback could be on the cards. Support can be seen at 1.29 round number and 1.2850, last week’s low. A break below here exposes the 200 SMA.

On the upside, buyers will need to rise above 1.30 to extend gains towards 1.3050, the November high, and a 1.31 round number.

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DAX falls from record high with geopolitical updates on tap ahead of the Fed

• DAX rose to a record high after a key German vote yesterday
• Geopolitical news flow hurts sentiment
• Fed rate decision is due at 18:00 GMT
• DAX RSI bearish divergence could means local top is in

The tax is opening lower after such a session on Wall Street overnight, and there is plenty of news flows to keep investors jittery ahead of the Fed's rate decision later today.

The list of geopolitical developments is long, with news of Turkish authorities detaining President Tayyip Erdogan’s and main political rival on charges of corruption also filtering into European sentiment. Meanwhile, Russia's President Putin failed to agree to a full ceasefire over Ukraine, rejecting Trump’s proposal and continued bombing Ukraine.

Yesterday the German DAX rose to record levels after the country's parliament approved plans for a massive increase in spending to revive economic growth and boost military defence. This would directly translate into increased revenue for German and European defennce and aerospace stocks, sending them to record levels.

Attention will turn to the Federal Reserve’s interest rate decision later today, when the central bank is expected to leave rates unchanged; however, comments regarding the outlook for the economy in light of Trump's trade tariffs, new economic projections, and the Fed’s dot plot will likely impact the market.

In Europe, eurozone inflation data is due to confirm the preliminary reading of 2.6% YoY. The ECB recently cut rates by 25 basis points and hinted at more easing if uncertainty persists. The central bank cut growth forecasts and nudged inflation expectations slightly higher in the short term.
 

DAX forecast - technical analysis

The DAX rebounded from the rising trendline, reaching 23,477 yesterday, matching the record high, before easing back today. The bearish divergence on the RSI suggests that the run higher could be running out of momentum.

Buyers would need to rise above 23,477 to extend the bullish run to fresh record highs.

Support can be seen at 22,950, the February 19 high, and below here at 22,570, the rising trendline support. Below here 22,000 comes into focus.

(Click on image to enlarge)

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