GBP/USD gains momentum above 1.3450 as worries over Fed autonomy weigh on the US Dollar

GBP/USD Moves Higher Amid Fed and BoE Developments

The GBP/USD currency pair is climbing toward 1.3470 in early European trading on Tuesday. The US Dollar is losing ground to the British Pound after the US Department of Justice threatened to indict Federal Reserve Chair Jerome Powell over remarks he made to Congress regarding a renovation project.

On Sunday, Powell revealed that the Fed had been served subpoenas by the Justice Department in connection with his testimony last summer about cost overruns on a $2.5 billion renovation at the central bank’s Washington headquarters.

Powell described these legal threats as a “pretext” aimed at pressuring the Fed to cut interest rates. This development has sparked concerns about the Fed’s autonomy, leading to some selling of the US Dollar and providing support for GBP/USD.

Meanwhile, the Bank of England (BoE) lowered its key rate to 3.75% at its December meeting and is anticipated to make additional cuts in 2026 as inflation slows and the UK labor market remains subdued. However, policymakers have indicated that future rate decisions may be more finely balanced.

If the BoE maintains a dovish outlook, it could put downward pressure on the Pound against the Dollar. Many experts expect the BoE to keep rates unchanged in February, with the next 0.25% reduction likely coming in March or April.

Market participants are also awaiting the release of US December Consumer Price Index (CPI) data later on Tuesday. Both headline and core CPI are projected to rise by 2.7% year-over-year for December, potentially providing further insight into the future direction of US interest rates.