Pound Falls 1.1% to $1.3365 After Fed Hike and Hawkish Guidance
GBP/USD dropped 1.1% last week as the Fed hiked rates and signaled further tightening, pressuring the Sterling against the Dollar.
Key points
- GBP/USD fell 1.1% to $1.3365 last week after the Federal Reserve hiked rates by 25 basis points.
- Fed Chair Kevin Warsh signaled that another interest rate hike is likely before the end of the year.
- UK PMI data released this week could help the Pound recover if private sector activity accelerates.
The Pound to US Dollar exchange rate fell 1.1% to $1.3365 last week. This decline followed the Federal Reserve’s first interest rate hike in three years.
The Fed signaled further tightening, which strengthened the Dollar and pressured the Pound. Exchange Rates UK notes that Sterling remains vulnerable to these hawkish moves.
Fed Hawks Boost Dollar Strength
Investors anticipated clear hawkish signals alongside the expected 25 basis point hike. Fed Chair Kevin Warsh confirmed the need for more action to control inflation.
Warsh strongly indicated that another rate hike will occur before the year ends. This guidance pushed the Dollar significantly higher despite some profit-taking later in the week.
Weak UK Data Drags Pound
Sterling struggled as UK macroeconomic data disappointed investors throughout the week. Tuesday’s jobs report revealed underlying weakness in the labor market despite stable unemployment.
Wednesday’s inflation figures showed rising headline prices but flat core inflation. This mixed result failed to provide the support needed to lift the Pound.
Boe Lagging Behind Peers
The Bank of England left rates on hold as widely expected. However, the Pound stumbled because the Boe remains further behind its peers in restarting its hiking cycle.
A partial recovery occurred on Friday due to an unexpected rebound in UK retail sales. This single positive data point offered limited relief against broader selling pressure.
