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Fed and BoE Rate Decisions to Infuse Volatility in GBP/USD exchange Rate?

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GBP/USD Exchange Rate Trades Sideways

Trade in the Pound US Dollar (GBP/USD) exchange rate is mixed today, in anticipation of both the Bank of England’s (BoE) and the Federal Reserve’s interest rate  decisions on later in the week..

At the time of writing the GBP/USD exchange rate is trading at around $1.2581. Roughly unchanged from this morning’s opening rate.

Fed Forward Guidance to Infuse Volatility in the US Dollar (USD)?

The US Dollar (USD) could see some significant volatility this week as the Federal Reserve prepares to deliver its final interest rate decision of 2023.

The Fed is not expected to raise interest rates this month, with any movement in USD exchange rate instead being driven by the bank’s forward guidance for 2024.

USD investors will be looking for some direction on when the bank might start cutting interest rates.

There has been some back and forth in recent weeks over the timing of the Fed’s first cut, with the odds that the bank will begin loosening its policy in March having fallen below 50% following Friday’s stronger-than-expected payrolls.

However, the latest US consumer price index could revive these rate cut bets ahead of the Fed’s decision, if November’s CPI figures show that US inflation continued to cool at a faster-than-expected rate.

Will Looming Data Releases and BoE decision weigh on the Pound (GBP)?

The UK’s latest jobs data will be in focus for GBP investors tomorrow, as it’s release could dent Sterling if results print as expected.

The data is expected to show a fall in average earnings, from 7.7% to 7.4%, whereas unemployment is expected to increase from 4.2% to 4.3%.

Meanwhile, Wednesday will see the publication of the UK’s latest GDP figures, which are forecast to report a 0.1% contraction of growth in October.

The underwhelming data could set the tone ahead of the Bank of England’s (BoE) rate decision later in the week.

While the BoE is also expected to leave interest rates on hold this month, the bank is expected to strike a more hawkish tone than the Fed, after several BoE policymakers used recent speeches to signal that UK interest rates will remain higher for longer.

Could this hawkish forward guidance, couple will another upbeat UK services PMI, help the GBP/USD exchange rate to push higher at the end of the week?

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