Pound US Dollar (GBP/USD) exchange rate subdued as Fed rate decision looms
The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range this morning, ahead of the Federal Reserve’s interest rate decision later this evening.
At the time of writing, GBP/USD is trading at $1.2672, virtually unchanged from this morning’s opening rate.
US Dollar (USD) muted ahead of Fed rate decision
The US Dollar (USD) is trading sideways against its peers this morning, as markets await the first Federal Reserve interest rate decision of 2024.
With markets widely expecting interest rates to remain unchanged at 5.5%, investor attention will turn to any potential forward guidance from the central bank regarding their upcoming cutting cycle.
Ahead of today’s decision, the CME FedWatch Tool, suggests markets are currently pricing in a 43% chance of a rate cut in March.
Economists at ING speculate ahead of the FOMC event:
‘Expectations of the first Federal Reserve rate cut in March continue to fade as US data comes in on the strong side. Our bias is that the message from today’s FOMC meeting is also one of patience and the US Dollar can stay bid.’
Expect to see the US Dollar strengthen if the language used by the Fed in its policy statement this evening helps to further undermine rate cut bets.
Pound (GBP) treads water despite rise in house prices
The Pound (GBP) is trending lower than the majority of its counterparts this morning, despite reports that UK house prices are on the rise.
With Nationwide Building Society reporting that average house prices have risen by 0.7% in January, thanks to decreasing mortgage rates, GBP investors have welcomed the news just a day before the Bank of England’s (BoE) interest rate decision.
Robert Gardner, Nationwide’s Chief Economist, commented:
‘There have been some encouraging signs for potential buyers recently with mortgage rates continuing to trend down. This follows a shift in view amongst investors around the future path of Bank rate, with investors becoming more optimistic that the Bank of England will lower rates in the years ahead.’
GBP/USD exchange rate forecast: BoE decision to bolster Sterling?
Looking ahead, the primary driver of movement will likely be tomorrow’s Bank of England interest rate decision.
Although rates are widely predicted to remain at 5.25%, GBP investors will look to the central bank’s monetary policy statement and accompanying minutes, for any signs of looming rate cuts.
Should the BoE maintain their hawkish rhetoric of ‘keeping rates higher for longer’, the Pound could gain ground in the latter stages of the week.
Across the Atlantic, tomorrow the US will publish its ISM manufacturing PMI. Expected to slightly decrease, this may weigh on the ‘Greenbank’ on Thursday.
Then at the end of the week we will see the publication of the latest US non-farm payroll report, where an expected drop in employment growth this month could also apply pressure to the US Dollar.