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The GBP/USD pair holds steady around 1.3465 during the early Asian trading hours on Wednesday. However, the Bank of England (BoE) guided that monetary policy will remain on a gradual downward path, which might underpin the Cable against the US Dollar (USD). Financial markets are expected to trade on thin volumes as traders prepare for the New Year holiday.

The Bank of England (BoE) cut interest rates from 4.0% to 3.75% at its December policy meeting, the lowest level in nearly three years. Governor Andrew Bailey said during the press conference that rates are likely to continue on a gradual downward path, but "how much further we go becomes a closer call" with each cut. Money markets believe the UK central bank will deliver at least one rate reduction in the first half of the year and are pricing in nearly a 50% chance of a second before the year-end, according to Reuters.

On the USD’s front, the US Federal Reserve (Fed) decided to cut the interest rate by 25 basis points (bps) at its December meeting, bringing the federal funds rate to a target range of 3.50%–3.75%. FOMC Minutes released on Tuesday revealed that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. 

Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions this year to support the weakening labor market. Following the FOMC minutes’ release, markets are now pricing in nearly an 85% chance that the Fed will leave rates unchanged in January, according to the CME FedWatch tool.

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