GBP/USD drops below $1.13 following hawkish Fed rate hike

Philip McHugh September 22nd 2022 - 2 minute read

The US dollar climbed to new multi-year highs on Wednesday, following the Federal Reserve’s latest interest rate decision.

Meanwhile, the pound opens today’s session on the back foot, with GBP/EUR dipping to €1.1428 and GBP/USD retreating to $1.1232. GBP/CAD is rangebound at C$1.5198, while GBP/AUD and GBP/NZD hold steady at AU$1.7053 and NZ$1.9315, respectively.

Looking ahead, will the Bank of England’s latest interest rate decision result in some volatility in the pound today?

What’s been happening?

The US dollar got off to a strong start yesterday, as a bearish market mood saw skittish investors favour the safe-haven currency.

USD exchange rates then spiked in the wake of the Federal Reserve interest rate decision, as it delivered another 75bps hike and the bank’s so-called dot plot suggested rates could climb to 4.6% by the end of 2023.

The euro, meanwhile, stumbled on Wednesday as the single currency was hit by fears of an escalation of the war in Ukraine after Vladimir Putin announced of a ‘partial mobilisation’ of Russian forces.

EUR investors fear this could drag out the conflict and place even more pressure on the Eurozone economy.

At the same time, the pound was mostly rangebound through yesterday’s European session. While Sterling was also negatively impact by developments in Ukraine, this was offset as the UK government unveiled its plans to support businesses with energy costs this winter.

What’s coming up?

The Bank of England’s interest rate decision is likely to be the highlight of today’s session.

With analysts split on whether the BoE will deliver a 50bps or 75bps increase there is a good chance for some volatility in the pound today.

If the BoE opts for a 75bps hike Sterling may shoot higher. On the other hand, a 50bps increase is likely to disappoint GBP investors and extend the pound’s recent losses.

Meanwhile, Ukraine developments are likely to continue to act as a key catalyst of movement for the euro and could limit the single currency’s upside potential. Even if the latest Eurozone consumer confidence figures show another improvement.

Finally, the US dollar may maintain its bullish momentum today, so long as market risk appetite remains weak.

Written by
Philip McHugh

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