Pound US Dollar Exchange Rate Muted as Investors Look Towards Fed Interest Rate Announcement
At the time of writing, the GBP/USD exchange rate is trading at approximately $1.2516, with minimal movement from today’s opening levels.
US Dollar (USD) Subdued Ahead of Fed’s Interest Rate Decision
The US Dollar (USD) is trending in a narrow range against the Pound (GBP) today as investors await the Fed’s latest interest rate decision.
At present, the Fed is expected to hike interest rates from 0.5% to 1%.
This will be the sharpest interest rate hike since 2000 and comes as the Fed seeks to curb surging inflation. In March, US inflation reached a 40-year high of 8.5%.
However, with the rate hike largely priced in by USD investors, any movement in the US Dollar is likely to be driven by the bank’s forward guidance.
Should the Fed signal plans to further accelerate its current tightening cycle, the US Dollar could retest its recent multi-year highs.
On the other hand the US dollar could succumb to some profit taking if the Fed is a little more cautious than expected.
Pound (GBP) Edges Higher Despite Political Uncertainty
The Pound (GBP) is trending slightly higher against the US Dollar (USD) largely due to the ‘Greenback’s current weakness.
Meanwhile, UK politics remains a source of anxiety for GBP investors as local elections loom.
Should the Conservative Party lose a significant number of seats, it may undermine Boris Johnson’s position and lead to fresh calls for his resignation..
Yesterday, the opposition leader, Sir Keir Starmer, stated the ‘narcissistic’ Prime Minister is ‘out of touch’ with the general public. This comes amid the UK’s cost of living crisis as people struggle to pay rising energy bills.
Moreover, GBP investors are looking towards Bank of England’s (BoE) interest rate decision, on Thursday.
The bank is expected to raise interest rates from 0.75% to 1%. However this could be undermined by some cautious forward guidance from the BoE.
Pound US Dollar Exchange Rate Forecast: Fed Takes the Spotlight
Looking ahead, the Fed’s interest rate decision this evening and tomorrow’s BoE decision could infuse volatility into the Pound US Dollar exchange rate in the second half of the week.
A hawkish Fed and a dovish BoE, as expected, will almost certainly weaken GBP/USD.
Moreover, this afternoon the ‘Greenback’ may be bolstered by US ADP employment figures. It is forecast 395K people were hired throughout April. If this is correct, it is likely to support the US Dollar.
Meanwhile, a strong ISM non-manufacturing PMI could also underpin USD exchange rates ahead of the Fed rate decision.
On the other hand, an absence of UK economic data scheduled for release today will leave the Pound exposed to market sentiment and other factors.