Pound Slips Amid Fed Hike Expectations and Rising Inflation
The British pound slipped on Wednesday as investors priced in a near-certain Federal Reserve rate hike and firmer UK inflation data.
The dollar found broad support ahead of the Fed decision, with Francesco Pesole, FX strategist at ING, saying that 'any openness to further tightening can support the dollar by reinforcing policy credibility and countering any debasement trade risk premium.'
The Fed is widely expected to deliver a 25 basis point hike to 4% later Wednesday, with markets pricing 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.
In the 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.
The euro's resilience reflects a diverging dollar narrative rather than eurozone strength, with ING targeting a EUR/USD test of 1.150 as soon as this week, potentially triggered by Wednesday's Fed announcement.