Best GBP/USD Rates Ease Before Fed Decision

The Pound US Dollar (GBP/USD) exchange rate ticked lower during Wednesday’s European trading session, pulling back from the multi-year highs struck late on Tuesday.

DAILY RECAP:

Having struck new multi-year lows overnight on Tuesday, the US Dollar (USD) managed to claw back a small portion of its losses on Wednesday morning.

The US Dollar has been under heavy selling pressure over the past week and a half, having fallen around 3% since mid-January, as the Trump administration’s erratic approach to trade, foreign and economic policy, alongside the threat of another government shutdown, eroded confidence in the currency.

These losses accelerated further overnight after President Donald Trump appeared to welcome the Dollar’s weakness, branding the sharp depreciation as ‘great’ and suggesting the currency should be left to ‘seek its own level’.

However, Wednesday morning saw modest repositioning among USD investors as attention turned to the Federal Reserve’s impending interest rate decision.

While the Fed is not expected to announce any policy changes at its first meeting of the year, the prospect of some hawkish guidance from the US central bank proved enough to lift USD sentiment slightly.

Meanwhile, the Pound (GBP) faltered against most of its peers.

Sterling struggled to attract meaningful support amid the continued absence of any notable UK economic data.

GBP sentiment was also weighed down by a slightly dovish repricing of Bank of England interest rate expectations, despite last week’s UK data largely surprising to the upside.

Near-Term GBP/USD Forecast: Shutdown Risks to Revive Dollar Selling?

As we move into the second half of the week, the Pound to US Dollar exchange rate may resume its bullish trajectory as US political risks intensify.

With Senate Democrats and Republicans locked in a standoff over funding for the Department of Homeland Security, a partial government shutdown appears increasingly likely when current funding expires on Saturday — a risk that continues to inflate the US Dollar’s political risk premium.

At the same time, with UK economic data still thin on the ground, movement in the Pound is likely to remain driven by broader market sentiment.