• Pound Sterling drops amid market caution ahead of UK’s budget, Fed Powell’s testimony.
• Limited exposure to fiscal stimulus in the UK’s spring budget would reinforce hopes of BoE rate cuts.
• Investors await the UK and US PMI data for fresh guidance.

The Pound Sterling (GBP) falls slightly from the crucial resistance of 1.2700 in Tuesday’s European session. The GBP/USD pair has come under pressure due to diminishing investors’ risk appetite and uncertainty ahead of the United Kingdom’s Spring budget, to be outlined by Chancellor Jeremy Hunt on Wednesday.

The scope of fiscal measures will be a balancing act for Jeremy Hunt as the UK economy faces a stubborn inflation outlook and deteriorating growth forecasts. “We’ve always said we would only cut taxes in a way that’s responsible and prudent,” Hunt said on Sunday, according to BBC News

Limited scope for tax cuts would escalate hopes of early rate cuts by the Bank of England (BoE), a scenario that could weigh on the Pound Sterling. 

Meanwhile, a dismal market sentiment ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress, also due on Wednesday, and an array of United States economic data this week has brought some relief for the US Dollar. 

In today’s session, investors will focus on the final S&P Global/CIPS UK Services PMI, to be released at 09:30 GMT,  and the US S&P Global and ISM Services PMIs, which will be published at 14:45 GMT and 15:00 GMT, respectively.