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GBP/USD Exchange Rate Static ahead of Potential Crash on Fed Interest Rate Hike

September 26, 2018 - Written by James Fuller

On Tuesday, the Pound opened trading at a level of $1.3117 and closed higher around $1.3178.

There was little domestic data, so Pound Sterling was instead supported by a sustained positive reaction to Monday’s remarks from Brexit Secretary Dominic Raab.

Mr Raab rejected Prime Minister Theresa May’s assertion last week that Brexit talks were at an ‘impasse’, instead speaking in favour of maintaining a dialogue with EU leaders.

Daily GBP/USD News: Pound Sterling to US Dollar Exchange Rate Steady despite No-Deal Brexit Worries



The Pound (GBP) has remained close to opening levels against the US Dollar (USD) today, with uncertainty about the Brexit process and this evening’s Fed interest rate decision limiting GBP demand.

In domestic news, there have been Pound-limiting concerns that a no-deal Brexit could be more likely now due to Labour’s latest party conference.

Delegates backed a potential public vote on Brexit near the end of the process, which Shadow Brexit Secretary Sir Keir Starmer said might include ‘remain as an option.’

Labour’s inclination to possibly reject the government’s Brexit plan entails significant risk, however, as it could push the UK closer to a no-deal Brexit outcome.

Leaving the EU without a deal is widely seen as the worse possible outcome, and signs that no-deal could be more likely have greatly limited Sterling demand today.

US Dollar to Pound (USD/GBP) Exchange Rate Static ahead of Fed Rate Decision



The US Dollar (USD) has started to appreciate against its currency peers today, but remains stuck in narrow trading against Pound Sterling (GBP).

This limited USD/GBP movement comes in the lull before this evening’s Federal Reserve interest rate decision, which is expected to result in a rate hike from 2% to 2.25%.

Outlining other factors that USD traders are considering at present, Neil Wilson of Markets.com says:

‘The key question is what monetary policy in 2019 looks like ... there are a number of factors that might tempt the Fed to slow its pace next year.

‘The fiscal put should start to lessen, while tariffs could impact on its forecasts for growth. However a lot depends on the extent to which the Fed sees tariffs pushing up prices as well.’


The Fed will eventually hit a neutral rate at which point continued interest rate hikes are unlikely, but just what this rate will be is still unclear.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Volatility ahead on Fed Rate Decision



The currency market tension that has been building over the current week will come to a head this evening, when the Federal Reserve finally reveals its September interest rate decision.

An interest rate hike from 2% to 2.25% seems almost guaranteed at this stage, but even a forecast-matching rate hike might not cause a major USD/GBP exchange rate rally.

This is because US Dollar traders have been pricing in such an outcome for weeks if not months, therefore the impact of higher interest rates could be diminished.

The US Dollar is more likely to rally against the Pound if Fed policymakers hint at a November or December interest rate hike, or if the bank’s economic projections are seen as particularly positive.

The next economic events that could cause Pound Sterling movement will be a pair speeches from Bank of England (BoE) officials on Thursday.

BoE Chief Economist Andy Haldane and Governor Mark Carney will both be giving remarks tomorrow and could boost the Pound if they back a 2019 UK interest rate hike.
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