Pound Weakens as Fed Prepares to Hike Interest Rates Above Bank of England

The Pound is under pressure ahead of the Federal Reserve's (Fed) rate hike decision on Wednesday. The GBP/USD pair has drifted lower to close near 1.3470, down 0.2%, as investors await the Fed's first interest rate increase since July 2023.

Markets expect the Fed to raise its benchmark rate by a quarter-point to 4.00%, with futures pricing in four hikes by mid-2027 and a 15% chance of the first hike on Thursday. In contrast, the Bank of England (BoE) is expected to keep interest rates at 3.75%

The UK's consumer price index (CPI) will be released on Wednesday morning, with forecasts indicating an increase in inflation to 3.1% for the year to August.

Goldman Sachs has warned that the gilt market's move toward pricing hikes may have gone too far, and the BoE Governor said last week that another hike is not inevitable, despite market expectations of four Bank of England hikes by next summer.