ExchangeRates.org.uk - The Fed is widely expected to cut rates by another 25 basis points when it concludes its December policy meeting on Wednesday evening.
However, with the rate cut already priced in, the primary focus will be on the bank’s forward guidance.
If the bank strikes a more hawkish tone as most analysts expect, its likely to push back expectations for additional cuts in 2025 and help to propel the US Dollar higher.
The Pound (GBP) struggled to attract support Wednesday, as markets digested the UK’s latest consumer price index.
According to data published by the Office for National Statistics (ONS), headline inflation in the UK accelerated from 2.3% to an eight-month high of 2.6% in November.
The bump in inflation has effectively erased any lingering bets the Bank of England’s (BoE) might cut interest rates when it concludes its December policy meeting later this week.
However, this still wasn’t enough to lift the Pound on Wednesday morning, with GBP investors worried about how persistent inflation might negatively impact UK economic growth.
GBP/USD Exchange Rate Forecast: Hawkish BoE to Lift Sterling?
Looking past the Fed rate decision to the second half of the week, the main catalyst of movement for the Pound US Dollar exchange rate will no doubt be the BoE’s own rate announcement on Thursday.
No policy changes are expected from the BoE this month, leaving the bank’s policy outlook to determine the direction of Sterling.
This may see the Pound strengthen if the bank expresses concern over persistent inflationary pressures in the UK and signals the next rate cut may be some way off.
Meanwhile, in addition to the fallout from the Fed’s latest policy meeting, the finalised US GDP reading for the third quarter may also infuse volatility into the US Dollar on Thursday.
This content was originally published on ExchangeRates.org.uk