Pound Flat as Traders Await Fed Rate Decision

The British pound traded flat on Wednesday as traders waited for the Federal Reserve's rate decision. The GBP/USD pair was steady at 1.3289, down 0.03%, while the EUR/USD pair eased to 1.1384, down 0.05%. Francesco Pesole, FX strategist at ING, noted that investors were holding back from major dollar bets due to a potential surprise Fed hike.

Pesole said that precautionary positioning for a potential Fed rate hike could keep the dollar supported ahead of the FOMC announcement. He added that the dollar index has shown 'little sensitivity' to recent declines in oil prices, but will be tested heavily today with markets pricing a 25-30% probability of a hike.

According to Pesole, unless Fed Chair Kevin Warsh surprises with a hawkish spin or there are more than two dissenters, the dollar will come under pressure. He also noted that a hold by the Fed would trigger an unwinding of precautionary USD positioning, allowing the dollar to reconnect with lower oil prices.

ING's forward view rests on the Fed holding rates with no more than two dissents. A hawkish surprise from Warsh or a broader hawkish vote split would likely keep the dollar supported and delay the anticipated euro and sterling recovery.