Pound US Dollar Exchange Rate News: GBP/USD Subdued Ahead of Fed Interest Decision

Modified: Wednesday, 16 March 2022 10:35 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Subdued Ahead of Fed Interest Decision

GBP/USD Mixed Ahead of Fed Interest Rate Decision

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range today as investors await the Federal Reserve’s interest rate decision.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3066, with minimal movement from today’s opening levels.

US Dollar (USD) Under Pressure as Investors Await the Fed’s Interest Announcement

The US Dollar (USD) is slightly down against the Pound (GBP) today as investors await the Fed’s latest interest rate decision.

The Fed is expected to increase interest rates by a quarter of a percent for the first time in four years, raising rates from 0.25% to 0.5%.

The rate hike has been largely priced in and comes against a backdrop of soaring inflation: US inflation is currently at 7.9% - almost 4 times the Fed’s target 2% - and likely to increase further.

However, some experts believe the slight rise in interest rates will do little to support the US economy.

JW Mason, associate professor of economics at John Jay College argued that ‘a sufficiently large rise in interest rates will have a substantial negative effect on real economic activity.’

Furthermore, the Fed Chair, Jerome Powell, will hold a press conference later today where future monetary policy will be discussed. Should Powell deliver a broadly hawkish tone, it may support the ‘Greenback’.

Bank of America analysts ‘…expect a hawkish message from Chair Powell, who will likely reiterate that the Fed needs to get serious about price stability.’

Pound (GBP) Edges Higher Amid Fresh Russia-Ukraine Optimism

The Pound (GBP) is trading higher against the US Dollar (USD) today due to renewed optimism surrounding the Russia-Ukraine war.

Despite further shelling being witnessed in Kyiv overnight, Volodymyr Zelenskiy has stated that Russian demands are becoming ‘more realistic’ as negotiations continue. This is underpinning positive sentiment and aiding the risk-sensitive Pound.

Zelenskiy also suggested Ukraine may drop its request to join Nato – a key demand from Vladimir Putin – and instead ‘rely on themselves and our partners who help us.’

Boris Johnson has echoed this position, stating:

‘I understand what [Zelenskiy is] saying about Nato and the reality of the position. And everybody’s always said, and we have made clear to Putin, there’s no way Ukraine is going to join Nato any time soon.

‘But the decision about the future of Ukraine has got to be for the Ukrainian people and for Volodymyr Zelensky as their elected leader, and we will back him.’

Furthermore, the Bank of England (BoE) is scheduled to deliver its latest interest rate decision on Thursday. The BoE is expected to increase interest rates for the third time since the pandemic, raising rates from 0.5% to 0.75%.

However GBP investors are reluctant to make any aggressive bets ahead of the announcement, which could be capping the Pound’s upside potential this morning.

GBP/USD Exchange Rate Forecast: Fed Steals Spotlight

Today, the Pound US Dollar exchange rate may be influenced by the Fed’s interest rate decision and Powell’s forward guidance.

Should Powell’s answers during this afternoon’s press conference provide hawkish insight into the Fed’s future avenue, it may boost USD.

In the meantime, an expected slowdown in US retail sales growth could exert some modest pressure on the US Dollar this afternoon.

Meanwhile, if geopolitical developments continue to improve risk appetite, it may bolster Sterling today.

Tomorrow could the see the Pound bolstered by the BoE, if the bank’s forward guidance signals plans to continue raising interest rates.

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