Above: File image of Federal Reserve Chairman Jerome Powell. Image © Federal Reserve.
Pound Sterling could be due a setback against the Dollar.
This is the assessment of some foreign exchange strategists we follow ahead of the midweek Federal Reserve policy update.
The Fed is due to keep interest rates unchanged, but market participants will be on alert for any surprises in the updated guidance and the release of new economic projections.
Chair Jerome Powell will also answer questions, and his tone will be as important as any new forecasts printed on paper.
"Powell would try to sound mostly non-committal with looming trade uncertainty. Unchanged 2025 median dot will be a hawkish signal, and we are bracing for a correction higher in the USD," says Jayati Bharadwaj, Global FX Strategist at TD Securities.
The Dollar lost value to most of its peers in 2025 as investors realised that President Donald Trump's tariff policy is causing enough uncertainty for businesses to trigger an economic slowdown.
Uncertainty is further exacerbated by the DOGE programme, which has seen a significant number of Federal job cuts.
Markets think this means the Federal Reserve has scope to cut interest rates by more than once in 2025.
However, this repricing might be reaching its limits, opening the door for a Dollar rebound.
The Federal Reserve could also signal caution about the inflationary impacts of tariffs, warning it is not minded to cut rates any time soon.
This would bolster U.S. bond yields and the Dollar.
The base case at TD Securities is that the Fed keeps rates on hold, with guidance still suggesting a cautious path ahead for policy as the Committee remains highly data-dependent.
TD Securities sees a +- 0.20% uplift in the broad Dollar index, which all else being equal, would result in a drop in the Pound-to-Dollar exchange rate to around 1.2990.
Above: GBPUSD at daily intervals. The chart shows scope for a pullback.
Sterling's retreat means the ceiling at $1.30 remains intact, confirming its status as a notable resistance point that will frustrate further gains.
Key technical levels tend to trigger selling interest as market participants lock in value.
"GBP/USD failed to hold above this key level in sign of exhaustion to the upside as several technical indictors are flashing 'overbought'. The prospect of a meaningful pullback cannot be discounted in the coming weeks if the pound continues to stall around these levels," says George Vessey, Lead FX Strategist at Convera.
A good example of the power of big, round technical levels occurred earlier this week when a reader made contact with Pound Sterling Live, saying he had a little over a million pounds worth of dollars to buy. He wants 1.30, which inevitably means he must wait for the spot market to hit approximately 1.3020-30 to bank 1.30 because of the fees (Wise) and spreads (most FX providers and banks) charged to cover international payments.
However, he is up against more astute market players who know the textbook. They are more likely to start selling as the market approaches 1.30 in anticipation of growing selling interest in the early 1.30s.
This is why those looking to buy dollars should consider setting up automatic orders at various levels ahead of 1.30 to cover at least half of their exposure.
Holding onto a portion of those funds also makes sense as 1.30 looks set to eventually give way on current trends.
"The $1.30 handle is a crucial psychological level, which, if surpassed, could trigger a significant upward movement as it did in August last year," says George Vessey, FX strategist at Convera.
According to Nick Kennedy, FX strategist at Lloyds Bank, GBP/USD currently aims for GBP/USD 1.3044, which blocks the 1.3108/42 band.
"Through there 1.3434 would come back into play, though that’s probably not something to think about nearer-term," he adds.