December 19, 2024 – Written by Ben Hughes
STORY LINK GBP to USD Exchange Rate Weakens Ahead of Key Fed Decision
The Pound to US Dollar (GBP/USD) exchange rate slipped on Wednesday as investors adopted a cautious stance ahead of the Federal Reserve’s final policy meeting of the year.
The US Dollar (USD) edged higher on Wednesday as attention turned to the Federal Reserve’s impending interest rate decision.
While the Fed is widely expected to cut rates by 25 basis points at its December meeting, investors are more focused on the bank’s forward guidance.
Amid rising US inflation expectations, analysts anticipate the Fed will adopt a more hawkish tone than it did at its previous meeting.
This should temper expectations for further rate cuts in 2025 and provide additional support for the ‘Greenback’.
The Pound (GBP) was subdued on Wednesday despite the release of stronger-than-expected UK inflation data.
The Office for National Statistics (ONS) reported that headline inflation rose from 2.3% to 2.6% in November, an eight-month high.
The bump in inflation was driven primarily by rising transport costs, while prices for recreational goods and services also rose.
While the inflation data reduced the likelihood of an imminent rate cut from the Bank of England (BoE), concerns lingered over how persistent inflation could weigh on UK economic growth, limiting support for Sterling.
Looking ahead to the second half of the week, the focus will shift to the Bank of England’s rate decision on Thursday, which could influence the Pound to US Dollar exchange rate.
While the BoE is expected to leave rates unchanged, its tone on inflation and economic growth will be critical.
Should the BoE signal that inflationary pressures remain a concern and that rate cuts are not imminent, the Pound may strengthen.
Meanwhile, in addition to the fallout from the Fed’s rate decision the US Dollar could experience volatility in response to the finalised third-quarter US GDP figures, which are also due on Thursday. An upward revision in GDP growth could reinforce support for the Greenback.
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TAGS: Pound Dollar Forecasts
