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The Pound Sterling has dropped below 1.2500 against the US dollar, trading at 1.2480, down 0.09% at the time of writing, and pressured by the strength of the US dollar ahead of the announcement of the latest Fed policy decision.
The Pound Sterling’s valuation is largely influenced by the Bank of England (BoE) expectations for interest-rate cuts, with financial markets speculating that the BoE could cut borrowing costs in June or August meetings. The recent steep correction in the GBP/USD pair reflects uncertainty among investors ahead of the Fed interest rate decision, which will be announced at 18:00 GMT.
The Fed is expected to maintain interest rates steady and give hawkish rhetoric, as recent inflation data suggests persisting price pressures, making it difficult for policymakers to gain confidence that price growth will sustainably return to the 2% target. This scenario of higher interest rates in the US improves the appeal of the US Dollar and weighs on other currencies whose central banks are seen cutting rates earlier than the Fed.
Traders see interest rates remaining unchanged in the range of 5.25%-5.50% for the sixth time in a row. Investors will closely monitor the interest rate outlook by looking at the Fed’s statement and Chairman Jerome Powell’s press conference. The Fed is expected to support the “higher for longer interest rates” argument as recent inflation indicators suggest progress in declining to the 2% target has stalled.
