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Pound US Dollar Exchange Rate to Slump Below $1.13 Following Fed Rate Decision?  

Stack of US Dollar banknotes

Pound US Dollar Exchange Rate Slips to New 37-Year Low 

The Pound US Dollar (GBP/USD) exchange rate is on the back foot this morning as fears of an escalation of the conflict in Ukraine rattles markets and sees investors favour safe-haven assets. 

At the time of writing the GBP/USD exchange rate is trading at around $1.1334. Down roughly 0.4% from today’s opening rate. 

US Dollar (USD) to Firm Following Hawkish Fed Rate Hike? 

The US Dollar (USD) looks poised to extend its bullish run today as the Federal Reserve is set to deliver its latest interest rate decision. 

The Fed is widely expected to deliver another 75bps rate hike when it concludes its September meeting later this evening. 

With the hike largely priced in, any subsequent movement in the US Dollar is likely to be dictated by the Fed’s forward guidance. A hawkish outlook could spook markets, and further boost the ‘Greenback’.  

Analysts at ING comment 

‘Looking at the FX implications, we think that a hawkish hike today by the Fed should continue to endorse the US Dollar’s good momentum for now. 

‘Expect a big chunk of the market reaction to be driven by the reaction in global equities – here a still hawkish Fed may not be read as good news, and that is another reason why we expect the safe-haven US Dollar to remain bid.’ 

Fed’s accompanying economic projections will also be a focus for investors. A gloomy outlook for the US economy could have major ramifications for global growth, increasing market safe-haven demand. 

Meanwhile, there is also an outside chance the Fed could deliver a 100bps increase today. An outcome which would undoubtedly cause USD exchange rates to skyrocket. 

BoE Rate Decision to Infuse Volatility in the Pound (GBP)? 

The Bank of England’s (BoE) own upcoming interest rate decision is set to act as the main catalyst for the Pound (GBP) in the second half of this week. 

Analysts are currently split on whether the BoE will pursue a 50bps hike or a 75bps increase. 

The latter could help to shore up support for the Pound as it will show the BoE is willing to do whatever it takes to combat inflation. 

On the other hand, a 50bps increase could weigh heavily on Sterling sentiment as it will reaffirm concerns that the BoE is falling behind the curve. 

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