Pound Slides as Fed Hike Bets Weigh
The British pound slipped on Wednesday as markets expected a near-certain Federal Reserve rate hike and firmer UK inflation data added to the pound's soft tone.
The dollar found broad support ahead of the Fed decision, with Francesco Pesole, FX strategist at ING, stating that 'a dovish hike may not be enough to convey monetary policy discipline' bond investors currently demand. He also noted that elevated oil prices and softer tech-stock sentiment made investors reluctant to build fresh dollar shorts.
The Fed is widely expected to deliver a 25 basis point hike to 4% later Wednesday, with markets pricing in 23bp for the meeting, 52bp by year-end, and 89bp by June. Chair Kevin Warsh's press conference is seen as the key swing factor for the dollar reaction.
UK headline CPI accelerated to 3.1% in August from 2.9%, driven by a widely expected 7% monthly rise in fuel costs. ING expects headline CPI to climb toward 3.4% next month and peak near 3.7% early next year, but sees the Bank of England holding rates into 2027 barring a sustained energy-price spike above the 4% inflation threshold.