GBP Weakens as Fed Rate Uncertainty Supports US Dollar
The British Pound (GBP) has softened against the US Dollar (USD), trading around 1.3290 during Asian hours on Tuesday, as market uncertainty ahead of the Federal Reserve policy decision supports the Greenback.
The USD stabilized despite President Donald Trump's comments that the US is engaged in 'good talks' with Iran to resolve the Middle East conflict. However, the diplomatic developments did not lead to direct negotiations between the two nations, and instead, oil prices fell, easing broader inflation and monetary policy concerns.
Investor focus has shifted to the Bank of England's (BoE) policy decision on Thursday, where policymakers are widely expected to hold interest rates steady at 3.75%. This outlook is supported by recent economic data showing annual consumer price growth slowed to a 15-month low of 2.6% in June.
The CME FedWatch Tool shows markets pricing in nearly a 38% chance of a rate hike in July, an unusually high level of uncertainty so close to a meeting. Citadel Securities expects the Fed to deliver a rate increase to solidify Chairman Kevin Warsh's inflation-fighting credibility following his repeated promises to restore price stability.
The probability of at least a 25-basis-point hike in September currently sits at approximately 81.4%.