GBP/USD Hits Five-Week Lows as Fed Rate Hike Expectations Rise
The Pound Sterling to Dollar exchange rate (GBP/USD) has hit five-week lows as investors remain cautious ahead of Wednesday's Federal Reserve decision. The US central bank is expected to raise interest rates by 25 basis points, which would bring the federal funds target range to 4.00-4.25%. Markets are pricing in a high probability of this outcome, with over 90% chance of a rate hike.
Oil prices have been rising, reaching four-month highs, and US Treasury yields have surpassed 5%, further supporting the Dollar's strength. The Pound has continued to find support on dips, trading around 1.3485 before re-testing the five-week low at 1.3465.
Analysts from various banks have weighed in on the situation, with ING stating that a Fed rate hike would be positive for the Dollar from an FX perspective. UoB warned of further GBP weakness, while Scotiabank noted that the trend remains bullish unless broken and extended below 1.34.
The Bank of England's decision to hold interest rates at 3.75% is also being closely watched, with some expecting a hike in November if energy prices remain high.