The Pound-Dollar rate could stay under pressure ahead of the Bank of England decision after the Federal Reserve raised rates and signalled further tightening.
The Pound US Dollar (GBP/USD) exchange rate remained close to recent lows on Wednesday evening after the Federal Reserve raised interest rates by 25 basis points.
At the time of writing, GBP/USD was trading at around $1.3470, close to Wednesday’s opening levels.
Pound to Dollar (GBP/USD): 1.338199 (-0.67%)
Dollar to Yen (USD/JPY): 156.29933 (+0.66%)
DAILY RECAP:
The US Dollar (USD) held firm on Wednesday after the Federal Reserve raised its benchmark interest rate by 25 basis points to 3.75%-4.00%.
The decision was unanimous and marked the Fed’s first rate increase since 2023.
With the hike already heavily priced in, attention centred on the Fed’s accompanying guidance and updated projections for clues over the future path of monetary policy.
Policymakers signalled that another quarter-point increase remains likely before the end of the year, while Fed Chair Kevin Warsh stressed that inflation remains too high and that underlying trends have not improved sufficiently.
This helped to keep the US Dollar supported following the announcement.
Recent signs of persistent inflation, alongside elevated oil prices and resilient economic activity, have strengthened the case for further tightening from the Fed.
However, Warsh continued to avoid firm forward guidance, leaving future decisions dependent on incoming inflation and labour-market data.
The Pound (GBP) traded sideways against most of its peers on Wednesday following the publication of the UK’s latest consumer price index.
According to the CPI data published by the Office for National Statistics (ONS), headline inflation accelerated from 2.9% to 3.1% last month, in line with forecasts.
Unsurprisingly, this bump in headline inflation was underpinned by surging energy prices, which have soared again since briefly falling back in July.
However, there was little sign that the spike in energy prices is reaching other parts of the economy yet, with core inflation holding at 2.6% through August.
This left Sterling subdued in mid-week trade as analysts suggested Wednesday’s data was unlikely to move the needle significantly ahead of the Bank of England’s impending interest rate decision.
Near-Term GBP/USD Forecast: Bank of England Decision Now in Focus
Looking ahead to Thursday, the next major catalyst for the Pound to US Dollar exchange rate will be the Bank of England’s latest policy decision.
The BoE is widely expected to leave monetary policy unchanged when it announces its decision at midday.
This places the spotlight on the vote split and accompanying guidance, which could weigh on Sterling if policymakers maintain a broadly cautious stance despite higher headline inflation.
Conversely, a more hawkish vote or stronger warnings over the impact of elevated energy prices could revive expectations for a UK rate hike later this year and provide the Pound with some support.
Meanwhile, the US Dollar could also react to the latest initial jobless claims figures, particularly if they provide fresh evidence over the resilience of the US labour market.
Our currency coverage draws on live market data, official economic releases and published bank research.
