Pound Slips as Dollar Strength Anticipates Fed Rate Decision

The British pound slipped on Tuesday as investors took out bets against it ahead of the Federal Reserve's interest rate decision on Wednesday. The dollar remained broadly bid, with markets pricing nearly a 40% chance of a rate hike.

The GBP/USD fell to 1.3278, down 0.16%, while EUR/USD slid to 1.1357, down 0.13%. According to Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, the FX market is taking the possibility of a Fed hike more seriously.

Turner noted that the case for an early move is gaining credibility as a way to boost the Fed's inflation-fighting credentials and ultimately lessen the need for subsequent tightening. He added that the central bank's lack of communication has created fertile ground for such speculation.

ING sees a break of 1.1360 support opening the door to a retest of the 1.1325 low, and expects EUR/GBP to hold gains near 0.8550. The firm also forecasts USD/CHF to reach 0.85 in August if the Fed 'blows the doors off' with a hike.