Pound US Dollar Exchange Rate Directionless as US Investors await Fed Rate Decision
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning as USD investors await the latest Federal Reserve interest rate decision.
At the time of writing the GBP/USD exchange rate is trading at around $1.1498, which is largely unchanged from this morning’s opening rate.
US Dollar (USD) Subdued ahead of Fed Rate Decision
The US Dollar (USD) is trapped in a narrow range this morning, as USD investors are reluctant to make any aggressive bets ahead of this evening’s Fed interest rate decision.
Investors have priced in a 75bps hike. This would be the fourth consecutive increase of this size, as the Fed seeks to curb soaring inflation.
With a 75bps increase largely priced in, the focus for USD investors will be on the Fed’s forward guidance.
There is considerable speculation that the Fed is considering slowing the pace of future hikes. Any confirmation of which could weigh heavily on the US Dollar.
Michael Hewson, Chief Market Analyst at CMC Markets UK explained this morning that a slowdown would be an attempt by the Fed to curb the long-term effects of higher inflation:
‘The main focus of attention has shifted in the past few days towards what might be coming in December, as markets increasingly price the prospect of a policy pivot, pause or slowdown, as we head into year end.’
Pound (GBP) Gains Capped by Poor Economic Outlook
The Pound (GBP) is trading in a broad range this morning as a lack of data releases today means investors turn to domestic headlines.
The bleak economic outlook for the UK is in focus today as food prices climb at a record pace. The ongoing energy crisis, the Ukraine war and worker shortages all comminating to compound the cost-of-living crisis currently facing the UK.
Speaking on the issue of rising food prices Helen Dickinson OBE, chief executive of the BRC said:
‘Prices were pushed up because of the significant input cost pressures faced by retailers due to rising commodity and energy prices and a tight labour market.’
However, the Pound’s losses were tempered somewhat by an undercurrent of rate hike bets. A 75bps interest rate hike is priced in for the Bank of England’s (BoE) policy decision tomorrow.
Pound US Dollar Exchange Rate Forecast: GBP to Climb on Rate Hike Bets?
Looking past this evening’s Fed interest rate decision, the Pound US Dollar exchange rate could be driven by the BoE’s rate decision tomorrow.
There is some uncertainty underpinning Sterling as BoE policymakers are facing the decision without a fiscal plan. With no clear indication of the UK’s economic future this could mean the central bank take a more dovish route. This would be more in line with past hikes, but could dent the Pound.
Turning to USD the market will likely face an adjustment period in the wake of the Fed decision. If the hike is less aggressive than expected it could leave the ‘Greenback’ vulnerable to a rapid sell-off.