Sterling retreated by 0.44% on Wednesday, backing off recent gains against the dollar along with other major currencies, but it remains near its 2024 high of at 1.3269, and limiting the decline to a shallow slide would indicate a growing bid for cable.

Rate differentials remain a source of strength for sterling.
Currently, STIR futures are pricing a decidedly more dovish Fed rate path this year and beyond, with the U.S. central bank expected to ease by 103 basis points in 2024.

By contrast, even after starting its easing cycle before the Fed, BoE easing this year is expected to total just 66bp.

By end-2025, the market is discounting a total of 226bp in Fed easing versus a further 131bp by the BoE over the same period.

However, should market assumptions about the degree of Fed dovishness prove overly enthusiastic, the dollar would receive a broad boost, hurting cable.

With that in mind, traders will be focused on upcoming U.S. inflation and payrolls data to help determine the Fed's policy trajectory and the direction of GBP/USD price action.

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