GBP/USD Faces Policy Split as Fed and BoE Near Key Decisions
The GBP/USD pair has been trading in a narrow range of 1.3525 to 1.3565 since Monday, with a daily record showing a tight 66-pip band over six sessions.
However, the policy split between the Fed and BoE is expected to have a significant impact on the pair's movement.
The dollar index recovered from an intraday low of 98.71 to 99.10 after the producer price index data was released, indicating that the interest rate advantage the dollar had over sterling has largely disappeared.
Market pricing now assigns a 62% to 64% probability to a Federal Reserve increase at the September 15-16 meeting, which could lead to a 25-basis-point edge for the dollar and a loss of support for sterling.
On the other hand, if the BoE raises rates while the Fed holds, sterling would retain a 25-basis-point advantage, putting 1.3675 back in play.