GBP/USD Exchange Rate Firms as Fed Powell Non-Committal on Further Hikes
(Updated 20:00, 26/07/23) The Pound US Dollar (GBP/USD) exchange rate is rallying this evening in the wake of the Federal Reserve’s latest interest rate decision.
As expected, the Fed hiked rates by 25bps to 5.5%. Propelling US interest rates to a new 22-year high.
The drop in the US Dollar then followed comments made by Fed Chair Jerome Powell in his accompanying press conference.
LIVE NOW: Press conference with #FOMC Chair Powell: https://t.co/1uJrua5qsH and https://t.co/FJa6TbkDMt
— Federal Reserve (@federalreserve) July 26, 2023
Powell was non-committal regarding the potential for a September rate hike. He suggested any further tightening of monetary policy would be data dependent.
The tone struck by Powell was perhaps more dovish than USD investors had anticipated. Powell previously indicated Fed policymakers expected to deliver two more rate hikes this year.
The Pound US Dollar climbed as much as 0.4% to strike highs of $1.2950 in the wake of Powell’s comments.
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GBP/USD Exchange Rate Steady as Market Brace for Fed Rate Decision
(Updated: 14:10, 26/07/23) The Pound US Dollar (GBP/USD) exchange rate continue to trade sideways this afternoon ahead of the Federal Reserve’s impending interest rate decision.
Federal Reserve officials are set to take interest rates to the highest since 2001 with a quarter-point hike Wednesday https://t.co/s32fzNliAJ
— Bloomberg Markets (@markets) July 26, 2023
The spotlight for USD investors will be whether the Fed chooses to focus on the rapid decline in US inflation or the continued resilience of the US economy.
The former could see the US Dollar nosedive as USD investors may interpret this as another sign the Fed nearing the end of its hiking cycle.
On the other hand, if Fed Chair Jerome Powell maintains a hawkish tone, the US Dollar could spike.
Meanwhile. the Pound is struggling to find momentum this afternoon. Sterling remains directionless in the absence of any notable UK data.
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Pound US Dollar Exchange Rate Flat Ahead of Fed Rate Announcement
The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range so far this morning, as markets brace for the Federal Reserve’s latest interest rate decision
At the time of writing the GBP/USD exchange rate is trading at around $1.2911. Virtually unchanged from this morning’s opening levels.
US Dollar (USD) to Slump on Dovish Fed Rate Hike?
The US Dollar (USD) could see some dramatic movement later this evening as the Fed concludes its July policy meeting.
The Fed is widely expected to hike US interest rates by another 25bps today. Raising borrowing costs to 5.5%, their highest levels since 2001.
As the hike is largely priced in by markets any subsequent movement in the US Dollar is likely to be determined by the Fed’s policy outlook.
With US inflation continuing to cool at a faster-than-expected pace there is considerable speculation the Fed may strike a dovish tone, signalling its hiking cycle has run its course. In this scenario the Pound US Dollar exchange rate could rebound above €1.30.
The #FederalReserve starts today it’s 2-day policy meeting. The overwhelming market expectation is for a “dovish hike” — that is, a 25 bps interest rate increase coupled with forward policy guidance that keeps the #Fed’s options open for a possible subsequent hike in September ……
— Mohamed A. El-Erian (@elerianm) July 25, 2023
However, if the Fed maintains that more tightening ‘may be appropriate’ so long as inflation remains above its target range then USD exchange rates are likely to jump. Such a decision could see GBP/USD test $1.27.
The Fed will deliver its interest rate decision at 19:00 BST. In the meantime, any movement in the US Dollar is likely to be extremely limited.
Pound (GBP) Muted amid Cautious Market Mood
The Pound (GBP) is mostly rangebound this morning as a cautious market mood limits demand for the increasingly risk-sensitive currency.
Sterling also remains suppressed by the revision to Bank of England (BoE) rate hike expectations, which followed the publication of the UK’s latest inflation figures.
However, there is a chance the Pound could catch some bids on the back of this evening’s Fed decision. As hawkish signals from the Fed may bolster BoE rate hike bets.
Pound US Dollar Exchange Rate Forecast: Slowdown in US GDP to Inject Volatility into USD?
Looking past the Fed rate decision to the second half of the week, movement in the Pound US Dollar exchange rate is likely to be primarily driven by the publication of the latest US GDP figures.
Economists forecast growth in the US economy will have slowed from 2% to 1.8% in the second quarter.
USD investors are unlikely to welcome a slowdown in GDP. However, the US Dollar may still strengthen as weaker growth in the world’s largest economy is likely to spook markets and see skittish investors favour the safe-haven US Dollar.
Meanwhile, the Confederation of British Industry (CBI) will publish its latest distributive trades index. If it reports the recent decline in sales volumes was reversed this month, the Pound may find some modest support.