GBP/USD Dips Below 1.3000 as US Dollar Holds Steady Before Fed Decision

Bank of Japan Expected to Maintain Interest Rates as Attention Turns to Future Hike Timing

The Bank of Japan (BoJ) is anticipated to keep its short-term interest rate steady at 0.50% at the conclusion of its two-day March policy review on Wednesday. Market focus will center on any indications from the BoJ regarding the timing and extent of potential future rate increases, which could spark significant volatility in the Japanese Yen (JPY).  

What to Anticipate from the BoJ’s Decision?
After raising its policy rate to 0.50%—the highest in 17 years—from 0.25% in January, the BoJ is expected to pause its rate-hiking cycle this month. This follows progress toward its 2% inflation target. The decision comes amid global economic shifts, including U.S. President Donald Trump’s return to office in January and his imposition of tariffs on China, Canada, and Mexico, igniting a global tariff war. While these tariffs could fuel inflation—a potential advantage for BoJ hawks—policymakers remain cautious due to Japan’s economic growth slowing to 0.6% in Q4 2024, down from an initial 0.7% estimate.  
Despite trade war concerns and a cooling economy, BoJ Governor Kazuo Ueda has signaled openness to further rate hikes if inflation trends toward 2%. Speaking to parliament on March 12, Ueda noted, “The market’s outlook for our short-term policy rate is the key driver of long-term interest rates,” underscoring the BoJ’s intent to gradually tighten policy.  
Supporting this stance, Japan’s National CPI surged to 4% in January from 3.6% in December, while the “core-core” inflation rate—excluding fresh food and energy—edged up to 2.5% from 2.4%. Meanwhile, 10-year government bond yields hit their highest since October 2008, and the JPY climbed to a five-month peak against the USD. Household spending also grew 0.8% year-on-year in real terms in January, the second straight month of gains.  
Friday’s initial “Shunto” wage negotiation results revealed a 5.46% average wage increase for fiscal 2025, per Japan’s largest union group Rengo—above last year’s 5.28% but below the demanded 6.09%. These developments bolster expectations of future BoJ rate hikes, with Bloomberg’s latest survey showing 48% of economists predicting a move in July, down from 56% previously.  
BBH analysts commented, “The BoJ is likely to hold rates steady after January’s 25 basis-point hike. Governor Ueda has emphasized assessing the impact of prior hikes, suggesting no immediate follow-up increase. The swaps market now eyes September for the next 25 basis-point rise.”  

How Might This Impact USD/JPY?
A data-dependent BoJ stance, with decisions made meeting-by-meeting, could weaken the JPY, pushing USD/JPY toward its March peak of 151.31. Conversely, hints of a May hike—driven by wage pressures, rising food costs, and trade war effects—might strengthen the JPY, driving USD/JPY down to 146.50. Reuters, citing a BoJ insider, noted heightened global risks as a factor that could alter hike timing.  
Any initial market reaction may shift during Governor Ueda’s 6:30 GMT press conference. FXStreet’s Dhwani Mehta highlights, “USD/JPY is at a pivotal point. A hawkish hold could trigger a drop toward 147.41 or 147.00, with 146.54 as a key level below. Alternatively, breaking above 150.00 could target 151.31, though the 200-day SMA at 151.93 poses a challenge.”

GBP/USD Dips Below 1.3000 as US Dollar Holds Steady Before Fed Decision

Australian Dollar Holds Steady as US Dollar Firms Ahead of Fed Decision

The Australian Dollar (AUD) remains largely unchanged on Wednesday after a prior session decline, with the AUD/USD pair trading near 0.6360. The US Dollar (USD) holds firm, supported by stable US Treasury yields, as markets await the Federal Reserve’s (Fed) interest rate decision later today. The Fed is expected to maintain current rates, citing persistent inflation and economic uncertainty, while traders eye updated projections for future rate clues.
Australia’s Westpac Leading Index improved to 0.8% in February from 0.6% in January, signaling domestic strength despite tariff pressures and waning commodity support. Treasurer Jim Chalmers, in a Tuesday speech, slammed the Trump administration’s trade policies as "self-defeating," criticizing the US exclusion of Australia from steel and aluminum tariff exemptions as "disappointing and senseless." He rejected retaliatory tariffs, prioritizing economic resilience.
Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter, speaking Monday, underscored a cautious approach to rate cuts, with the RBA closely monitoring US policy impacts on inflation. Meanwhile, Australian PM Anthony Albanese ruled out reciprocal tariffs, warning of higher consumer costs and inflation.
The US Dollar Index (DXY) trades near 103.40, though soft US data—February Retail Sales rose just 0.2% versus an expected 0.7%—and Trump’s tariff threats temper gains. Trump reaffirmed plans for reciprocal and sectoral tariffs starting April 2, with no exemptions for steel or aluminum. Separately, Trump and Putin agreed Tuesday to a 30-day pause on energy infrastructure strikes in Ukraine, though Putin rejected a broader ceasefire.
China’s weekend stimulus plan, aimed at boosting wages and stabilizing markets, could lift the AUD given its trade ties with Australia. China’s January-February retail sales rose 4.0% YoY (up from 3.7%), and industrial production hit 5.9% (above the 5.3% forecast).

AUD/USD Outlook
The AUD/USD pair stays bullish within an ascending channel, with the 14-day RSI above 50. Resistance looms at the three-month high of 0.6408; a break could target 0.6490. Support lies at the nine-day EMA (0.6334) and 50-day EMA (0.6311). A drop below this zone might push the pair toward the six-week low of 0.6187.