Pound US Dollar Exchange Rate Wavers ahead of Fed Interest Rate Decision

Pound US Dollar Exchange Rate Continues to Hover as Markets Brace for the Fed’s Decision this Evening

(Update 16:10, 28/7/21) The Pound US Dollar exchange rate has continued to trade sideways overall today, wavering between highs of $1.389 and lows of $1.385.

The lack of meaningful movement comes as markets await the outcome of the Federal Reserve’s latest policy meeting.

The Fed is expected to keep its interest rate unchanged but investors are hoping for more clarity from the central bank’s future guidance.

With Fed policymakers divided over the best course of action, traders are reluctant to place bullish bids in the run up to the decision. Additionally, the spread of the Delta variant in the US has some analysts expecting the Fed to strike a dovish tone, as the pandemic remains a threat to America’s economic recovery.

Original article continues below:

Pound US Dollar Exchange Rate Rangebound as Investors Await the Fed’s Policy Decision

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning as investors await tonight’s interest rate decision from the Federal Reserve.

Hopes of a hawkish tone from the Fed seem to be supporting the US Dollar, while the Pound is buoyed by the news that the UK may open up international travel as Covid cases continue to fall.

Pound (GBP) Muted amid Lack of Data

The Pound (GBP) is hovering around yesterday’s highs against the US Dollar this morning, as a lack of market-moving data leaves GBP without a clear directional bias.

Sterling jumped to a two-week high against the ‘Greenback’ yesterday after Covid cases in the UK fell for the seventh consecutive day.

The positive news came after a note of caution from Prime Minister Boris Johnson, who said:

‘It’s very, very important that we don’t allow ourselves to run away with premature conclusions about this.

‘Step four of the opening-up only took place a few days ago. People have got to remain very cautious, and that remains the approach of the government.’

The most recent figures will not yet indicate the impact of the UK’s lifting of most lockdown restrictions on 19 July.

However, GBP investors remain optimistic, as the steady fall in cases suggests that the UK’s vaccination programme is proving effective in tackling the virus.

The dropping case rate may also pave the way for Johnson to lift further restrictions, particularly around international travel, which could provide a boost to the UK’s aviation and tourism industries.

US Dollar (USD) Steady ahead of Fed’s Interest Rate Decision

The US Dollar (USD), meanwhile, is steady this morning after suffering a two-day losing streak. Rising Covid cases, a dip in US Treasury yields and below-expected durable goods orders have all weighed on the ‘Greenback’ this week, but today it is holding its ground.

One factor for this is today’s recovery in Treasury yields. The 10-year yield spiked just as European markets opened this morning, jumping from 1.23% to 1.26% in under an hour and giving USD an initial boost.

The US Dollar is also holding firm as traders await the Federal Reserve’s interest rate decision later tonight.

While analysts think it’s unlikely that the Fed will change its monetary policy, USD investors will be hoping for a more hawkish tilt from the central bank. In particular, traders are eagerly awaiting any news of when the Fed will begin to wind down its stimulus programme.

Last month’s hawkish hints from the Fed saw the US Dollar skyrocket. Since then, US inflation has continued to accelerate, surging to 5.4% in the most recent CPI. This has raised hopes among USD investors that the central bank will consider tightening monetary policy sooner than originally anticipated.

Pound US Dollar Exchange Rate Forecast: All Eyes on the Fed

The recent news that the UK is likely to ease international travel restrictions could continue to boost the Pound as the day goes on, adding to a growing sense of optimism that the UK will emerge from the pandemic with a robust economic recovery.

However, the Fed’s decision later is in the spotlight. While USD investors may be hesitant to place any aggressive bets ahead of the decision, hopes of a hawkish tone could limit the US Dollar’s downside.

Following the decision, we could see some big movement in the Pound US Dollar exchange rate.

Samuel Birnie

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