Pound Slips Below 1.3500 as Fed Hike Odds Climb
GBP/USD trades near 1.3490 as traders price in a 92.4% chance of a US rate increase. UK data and BoE decisions shape the near-term path.
The British pound slid to 1.3490 against the US dollar in early Tuesday Asian trading. The pair lost ground as market expectations for a Federal Reserve rate hike intensified.
Traders now assign a 92.4% probability to a 25 basis point increase at the September FOMC meeting. This figure rose from 67% prior to the release of the August inflation report.
Fed expectations drive dollar strength
Core CPI data showed a 0.3% rise in August, exceeding prior forecasts. This sticky inflation signal reinforced the view that the Fed will act to cool price pressures.
Chairman Kevin Warsh will hold a press conference after the two-day policy meeting concludes on Wednesday. Hawkish remarks could further boost the dollar, while dovish comments may weaken it.
Bank of England expected to hold steady
The Bank of England is projected to maintain its benchmark rate at 3.75% on Thursday. Governor Andrew Bailey stated there is no secret plan to raise rates unless oil prices cause lasting domestic inflation.
Market pricing for a rate hike on Thursday stands at 30%, up from under 10% last week. LSEG data indicates investors are nearly fully pricing in a move for November.
Yield spreads support pound outlook
Scotiabank strategists note a clear uptrend in UK-US yield spreads since early July. They argue these fundamentals continue to underpin the pound despite a heavy data calendar.
Key economic releases include Tuesday’s jobs report, Wednesday’s CPI, and Friday’s retail sales. The October 28 budget is identified as the primary medium-term risk event.
