GBP/USD Jumps as BoE Meeting Looms, Fed Rate Hike Odds Slip

The US dollar has taken a hit following Federal Reserve Chairman Kevin Warsh's comments on monetary policy.

Warsh emphasized that the rally in Treasury yields is tightening financial conditions and holding back price growth, and investors interpreted this as an intention to extend the pause and avoid tightening monetary policy for as long as possible.

The probability of a federal funds rate hike in September has fallen from 75% to 65%, and the likelihood of two hikes in 2026 has dropped from 51% to 44%.

This weakening of the US dollar against major peers, despite falling stock indices, a rally in Treasury bond yields, and rising oil prices, may benefit the pound. Commerzbank believes that the rally in Treasury yields will not necessarily weigh on the euro and the pound.

The Bank of England's meeting could provide sterling support, as investors do not expect a rise in the repo rate but anticipate hawkish rhetoric amid the escalating conflict in the Middle East and rising energy prices. The futures market is pricing in a 65% chance of a hike in September and nearly two increases by the end of this year.