Pound Weakens, Markets Await the Fed and BoE
The pound weakened against the US dollar in early Asian trading on Tuesday, with GBP/USD falling to around 1.3525. Market participants tended to hold positions ahead of the Federal Reserve and Bank of England interest rate decisions this week, so the currency pair's movement was limited but with a negative bias.
The Fed is widely expected to keep interest rates in the 3.50%–3.75% range at its meeting on Wednesday, having held them there since January. Some analysts note that the market is starting to reprice Fed policy in a more hawkish direction, influenced by inflation concerns triggered by renewed energy prices. The market's primary focus will be on Jerome Powell's press conference, as a more hawkish tone could support the dollar and pressure GBP/USD.
In the UK, the Bank of England is also expected to hold interest rates on hold on Thursday, but the market will be watching for any signs of a shift towards further tightening. Rising energy prices are considered a significant risk for the UK, given the country's reliance on natural gas, making an energy shock potentially more rapid in depressing inflation and activity.
Oxford Economics expects the UK's benchmark interest rate to remain on hold until the end of the year, with the central bank only having a clearer picture of the impact of the energy shock on the economy ahead of its meeting in late July. This framework makes the BoE's response highly dependent on how energy inflation is transmitted to domestic costs and demand in the coming months.
In the short term, the direction of GBP/USD is expected to remain sensitive to the combination of Fed and BoE policy expectations. Hawkish signals from the Fed are likely to strengthen the dollar and restrain GBP/USD gains, while a change in the BoE's tone regarding energy inflation risks will determine whether the pound receives additional support or remains on the back foot. (Asd)
Source: Newsmaker.id
