– Written by
Tim Boyer
STORY LINK Pound Sterling to Dollar Forecast: GBP Consolidation
The Pound to Dollar exchange rate (GBP/USD) consolidated above 1.33 after touching five-week highs, with traders now squarely focused on Wednesday’s Fed decision.
Markets expect a cut to 3.75%, though officials are likely to temper hopes for rapid follow-up easing.
GBPUSD’s path will hinge on Powell’s guidance and whether hawkish messaging offers the dollar a short-term lift.
GBP/USD Forecasts: Consolidation Below 5-Week Highs
After hitting 5-week highs around 1.3380, the Pound to Dollar (GBP/USD) exchange rate has consolidated above 1.3300.
The Pound has been subdued and the FTSE 100 index has drifted lower while markets are positioning for this week’s US interest rate decision.
There are no major UK data releases until Friday, but testimony by Bank of England officials to the Treasury Select Committee will be potentially important on Tuesday.
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UoB still expects GBP/USD gains to 1.3410 and added; “only a breach of 1.3265 would indicate that GBP has moved into a range-trading phase.”
The Federal Reserve will announce its latest policy decision this Wednesday with the Bank of England decision the following week.
There are strong expectations that the Fed will decide to cut rates again to 3.75% with traders pricing in close to a 90% chance of a move.
Scotiabank looked at the underlying issues; “The Fed is widely expected to cut rates this week… and give markets a little more insight into how a deeply divided policy-making body expects the key rate changes to unfold in the year ahead via updated dots and economic forecasts.”
Comments from Chair Powell will be important and markets will also watch the updated interest rate forecasts from individual committee members.
According to BNY Mellon’s head of markets macro strategy Bob Savage; “We expect to see some dissents, potentially from both hawkish and dovish members.”
RBC expects the doves will win out; “With some softer data during the blackout, we doubt the hawks will put up a major fight.”
MUFG commented; “To push through a rate cut, Fed leadership may need to pair it with more hawkish guidance. We expect the updated communication to signal that the pace of rate cuts will likely slow next year, while emphasizing that the path remains highly data-dependent.”
It added; “More hawkish guidance could provide support for the US dollar and further delay expectations for another cut early next year.”
According to ING; “The Fed could be a positive event risk for the dollar in that it seems hard for the Fed to validate the 90bp of easing priced into Fed Funds futures by early 2027. However, the potential formal nomination of Kevin Hassett as Fed Chair over the coming months and the seasonal factors keeping the dollar weak into year-end should limit the dollar’s upside.”
Danske Bank commented on the press conference; “We expect Powell to verbally push back against continuation of sequential rate cuts in early 2026. Updated dots will likely signal a range of views for 2026 rates outlook, but we expect median long-range dot to remain at 3.00-3.25%.”
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TAGS: Pound Dollar Forecasts
