• The Pound Sterling holds gains near 1.3200 against the US Dollar as bets supporting the Fed to opt for a large interest-rate cut surge.
• Investors expect the BoE to leave interest rates unchanged at 5% on Thursday.
• The UK core CPI is estimated to have accelerated to 3.5% in August.

The Pound Sterling (GBP) edges lower against the US Dollar (USD) but clings to gains near the round-level support of 1.3200 in Tuesday’s London session. The outlook of the GBP/USD pair remains firm as the US Dollar remains under pressure ahead of the Federal Reserve’s (Fed) monetary policy decision on Wednesday.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers close to a year-to-date (YTD) low near 100.50 amid firm speculation that the Fed will start its policy-easing cycle aggressively. 

The Fed is widely expected to cut interest rates for the first time in more than four years. The Fed has maintained a restrictive monetary policy stance due to a fierce battle against stubborn inflation, which was prompted by pandemic-led stimulus.

Market expectations for the Fed to begin reducing interest rates by a wide margin have risen overnight after dovish comments from Jon Faust, a former senior adviser to Fed Chairman Jerome Powell, in comments to the Wall Street Journal (WSJ). Faust said that his preference “would be slightly toward starting with 50 (basis-points interest-rate cut)”  as he thinks that several policymakers would forecast a 100-bps interest rate cut by the year-end. “If that is the case, leading off with a 25-basis-point cut risks raising awkward questions over why officials expect to deliver a larger rate cut later this year but didn’t lead with it”, he said.