Fed Rate Hike Weighs on Pound Ahead of BoE Decision

The US Federal Reserve raised interest rates by 25 basis points to 3.75%-4.00%, its first rate increase since 2023, as policymakers signalled another quarter-point hike is likely before the end of the year.

Fed Chair Kevin Warsh stressed that inflation remains too high and underlying trends have not improved sufficiently, keeping the US Dollar supported following the announcement.

The Pound (GBP) traded sideways against most of its peers on Wednesday after the publication of the UK's latest consumer price index, which showed headline inflation accelerated from 2.9% to 3.1% last month in line with forecasts.

However, Sterling is now under pressure ahead of the Bank of England's interest rate decision, expected at midday on Thursday, and a more hawkish vote or stronger warnings over elevated energy prices could revive expectations for a UK rate hike later this year and provide the Pound with some support.