- The Pound Sterling edges lower to near 1.2825 against the US Dollar (USD) in Wednesday’s European session. The GBP/USD falls despite weakness in the US Dollar, suggesting the British currency is facing severe selling pressure. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls by 0.2% to 104.20 on the day, with investors focusing on the Federal Reserve’s (Fed) monetary policy, which will be announced on Wednesday at 18:00 GMT.
- The Fed is widely anticipated to leave interest rates unchanged in the range of 5.25%-5.50%. This would be the eighth consecutive decision to keep key borrowing rates steady at their current levels since July 2023. In spite of expectations of a steady interest rate decision, investors will remain on their toes as the Fed is expected to communicate a clear signal that rate cuts are around the corner.
- According to the CME FedWatch Tool, 30-day Federal Fund Futures pricing data shows that the central bank reducing interest rates by 25 basis points (bps) in the September meeting is already priced in.
- Expectations for the Fed to begin reducing interest rates have been prompted by improved confidence that inflation will return to the bank’s target of 2%. The confidence was fueled by lower-than-expected readings in the United States (US) Consumer Price Index (CPI) data for May and June and a sharp deceleration in the Q2 Gross Domestic Product (GDP) Price Index. Also, moderating labor market conditions have strengthened speculation for rate cuts in September.
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