The Federal Reserve and Bank of England (BoE) will announce their latest interest rate decisions this week, potentially driving notable movement in the US dollar and the pound.
At the time of writing, Sterling is attempting a recovery after GBP/EUR and GBP/USD struck multi-week lows yesterday. However, demand for the pound seems limited amid a lack of UK data.
What are the Fed and the BoE expected to do?
The Federal Reserve is expected to leave rates unchanged when it concludes its latest policy decision on Wednesday evening, leaving investors to focus on the accompanying commentary.
Although Fed Chair Kevin Warsh said he wants the bank to refrain from forward guidance, markets will still be looking for clues on the future of interest rates, with many expecting to see some hawkish signals from the Fed.
Meanwhile, the BoE is also expected to leave policy untouched on Thursday, while striking a cautious tone about the need for rate hikes amid ongoing uncertainty in the Middle East.
How could this impact USD and GBP?
Any indications from the Fed that tighter policy could be on the way may underpin the US dollar, while a softer stance from the BoE could undermine the pound.
Meanwhile, the situation in the Middle East could continue to impact the currency market. If the recent pause in hostilities holds, GBP and EUR could enjoy support while USD faces headwinds.
Conversely, another flare-up of tensions could see the safe-haven US dollar attract fresh support.
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