Pound-Dollar Exchange Rate in Limbo Ahead of Federal Reserve Decision
The British pound is expected to decline against the US dollar in the coming days, but the Federal Reserve's decision on interest rates this Wednesday could potentially change its trajectory. The GBP/USD exchange rate has been oscillating around the level of 1.3506 since March, which has worked as a fulcrum for the market. This means that the pair has been trading from both sides of this level, with no clear direction.
The Federal Reserve's decision to raise interest rates is already priced in by markets, but the extent of the hike and its implications are still uncertain. Consensus suggests a 25bp increase to 3.75-4.00%, which would be the first hike since July 2023. However, some experts believe that further hikes may follow in October and December.
Bank of America expects two more 25bp hikes by year-end, while CBA agrees with this view. On the other hand, BBH notes that the market has already priced in a significant amount of tightening, making any additional hikes less effective. Pantheon Macroeconomics believes the Fed will tighten despite 'merely lukewarm CPI data', highlighting potential dissent on the quality of the case.
Technical analysis suggests that the 100-day moving average at 1.3443 is drawing the market towards it, with a daily close above the 21-day moving average at 1.3558 potentially changing its direction.