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GBP/USD Exchange Rate to Rally Following Fed Interest Rate Decision?

GBP/USD Exchange Rate to Strengthen in Response to Fed Interest Rate Hike?

The Pound US Dollar (GBP/USD) exchange rate is trading sideways this morning ahead of the Federal Reserve’s impending interest rate decision.

At the time of writing the GBP/USD exchange rate is trading at around $1.1493, which is largely unchanged from this morning’s opening rate.

US Dollar (USD) to Remain Subdued amid Policy Speculation?

The US Dollar (USD) is trading narrowly against the majority of its peers today. Bearish US investors are bracing for the Federal Reserve’s interest rate decision tonight.

Investors have priced in a 75bps hike, but are holding back awaiting the final decision. There is speculation the Fed is preparing to slow the pace of its currency tightening cycle. The Fed still want to curb inflation but wish to do so without stoking recession fears. 

Michael Hewson, Chief Market Analyst at CMC Markets UK suggests a dovish pivot from the bank is imminent:

‘In the last few weeks, we have seen some chatter that some Fed officials were becoming uneasy at the pace of the current hiking cycle.’

If the Fed confirms plans to deliver more modest hikes in the future the US Dollar is likely to plunge.

Pound (GBP) to Face Headwinds amid Gloomy Economic Sentiment?

The Pound (GBP) is mixed today amid fresh concerns over the UK’s cost of living crisis.

A report from the British Retail Consortium reported food price inflation has soared to a record high. Which alongside high energy prices are piling further pressure on the UK consumer.

According to Helen Dickinson OBE, chief executive of the BRC families face a harsh winter ahead without support:

‘While some supply chain costs are beginning to fall, this is more than offset by the cost of energy, meaning a difficult time ahead for retailers and households alike.’

However, GBP losses are being tempered ahead of the Bank of England’s (BoE) interest rate decision tomorrow. Investors have priced in a 75bps hike, which is underpinning Sterling today. If the bank pursues this hike it would be the largest in 33 years and could shore up support for the Pound.

Despite this expectation there are concerns that a lack of a fiscal plan could prompt a lower hike from the central bank. A less aggressive raise would be more in line with the BoE’s past dovish alignment, but this could weigh on the Pound.

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