GBP Falls as Fed Hike Widens Interest-Rate Differential
The British Pound (GBP) fell by 0.17% on Monday as the US Dollar maintained its advantage following the Federal Reserve's rate hike, which widened the interest-rate differential between the two countries.
The GBP/USD exchange rate eased to 1.3371 after touching 1.3400, remaining below key moving averages and technical indicators. Chicago Fed President Austan Goolsbee expressed concerns about recurring supply shocks potentially leading to economic hardship, and emphasized that achieving a 2% inflation objective may not be painless.
The Bank of England kept the Bank Rate at 3.75%, while acknowledging the potential impact of US-Iran conflict on inflation. Oil prices added some disinflationary support, but failed to underpin the Pound. West Texas Intermediate (WTI) crude fell more than 3% after talk of a possible diplomatic de-escalation between the US and Iran.
Derivative traders are positioning themselves for continued weakness in the Pound due to the Fed's hawkish stance, with options market data reflecting a bearish bias. Historically, when the spread between US and UK central bank rates widens in favor of the Dollar, the Pound experiences sustained downward pressure, often depreciating by an average of 1.5% over the subsequent month.