Pound-Dollar could build on recent gains if weaker Fed rate expectations continue to weigh on the US Dollar, although market sentiment remains a key risk.
The Pound to US Dollar (GBP/USD) exchange rate climbed to a one-week high on Thursday as investors reacted to the latest interest rate decisions from the Federal Reserve and the Bank of England.
At the time of writing, GBP/USD was trading around $1.3372, marginally higher on the day after retreating from an intraday high of $1.3406.
DAILY RECAP:
The US Dollar (USD) weakened as markets continued to scale back expectations for further Federal Reserve interest rate hikes following Wednesday’s policy announcement.
The Fed left interest rates unchanged by a 9-3 vote, with Chair Kevin Warsh voting to keep policy on hold, while the accompanying statement offered little fresh guidance.
Following the decision, investors pared back expectations for additional US interest rate increases later this year, leaving the US Dollar under pressure through Thursday’s session.
Meanwhile, the Pound (GBP) strengthened ahead of the Bank of England’s latest interest rate announcement as markets modestly repriced expectations before the decision.
Earlier gains in oil prices following renewed US strikes on Iran had prompted some investors to speculate that policymakers might adopt a more hawkish tone.
However, Sterling’s advance faded after the announcement. Although policymaker Catherine Mann joined two colleagues in voting for an interest rate hike, Governor Andrew Bailey reiterated that there was little evidence inflation was becoming entrenched in the UK economy.
The accompanying policy statement also pointed to “clear signs of underlying disinflation” in recent data, limiting further gains for the Pound.
Near-Term GBP/USD Forecast: US Consumer Sentiment to Support the Dollar?
Looking ahead, Friday’s final University of Michigan consumer sentiment survey will be the only notable US economic release.
Confirmation of improving consumer confidence could provide modest support for the US Dollar, while any downward revision may weigh on the currency.
With little UK economic data scheduled, Sterling may remain rangebound into the weekend.
Broader market sentiment is also likely to remain influential. If concerns over AI-related investment spending and renewed geopolitical tensions trigger another bout of risk aversion, the safe-haven US Dollar could regain support against the Pound.
Our currency coverage draws on live market data, official economic releases and published bank research.
