Pound Plunges as ‘Hawkish’ Fed Rate Cut Boosts Dollar

The British Pound (GBP) has extended its painful slide for a third consecutive day against the US Dollar (USD), dropping over 0.25% and breaching the 1.3200 support level to trade at 1.3160. This sharp decline is primarily driven by the Federal Reserve’s (Fed) recent interest rate decision, which analysts have dubbed a ‘hawkish cut.’

Although the Fed reduced its key rate to $3.75\%-4\%$, Chairman Jerome Powell poured cold water on expectations for further easing, stating that a December rate cut is “far from a sure thing” given that inflation risks remain tilted to the upside. Further solidifying the US Dollar’s strength, the Fed announced the end of its balance sheet runoff (Quantitative Easing) effective December 1st.

Simultaneously, the Sterling is wrestling with domestic issues ahead of next week’s Bank of England (BoE) meeting and the UK budget. UK Chancellor Rachel Reeves’ potential plans to adjust the windfall tax on the oil and gas sector and a possible 2% rise in income tax have fueled political and fiscal uncertainty, adding considerable pressure on the Pound and accelerating the GBP/USD’s retreat.