GBP/USD slid back toward the day's lows on Tuesday, surrendering an early-U.S.
rebound, undermined by a dovish RBA outcome seen making it more difficult for the BoE to hike this week.
Crucial for sterling bulls, cable remained above Fibo support at 1.3623, the 50% retracement of its 1.3413-1.3834 September-October rise off 2021 lows, but it ran out of petrol by the 30-HMA at 1.3658 and the 30-DMA at 1.3665.
With Australian inflation on the rise, markets had thought the RBA might pull forward its timeline for rate hikes, but it merely dropped guidance that rates would remain steady until 2024 nL1N2RT05Q.
A more hawkish RBA would allow the BoE to avoid being the global central bank aggressor in policy normalization, providing sterling bulls more certainty to a rate hike on Thursday BOEWATCH.
Market expectations remain anchored by 60%, which has prevented deeper sterling losses.
The next risk is the Fed's policy announcement on Wednesday, which is expected to announce asset purchase taper, seen as a first step toward eventual rate hikes.
Sterling traders are keen to understand the Fed's inflation outlook, and by extension its timeline for rate normalization.
A dovish Fed might encourage the BoE to delay hiking, exerting further downside pressure on GBP/USD and putting its 2021 low of 1.3412 in sharper focus.
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