Pound US dollar exchange rate: GBP holding steady ahead of Fed interest rate announcement

Sterling is unchanged against the dollar today with currency traders unwilling to make any moves ahead of the US Federal Reserve’s interest rate decision later today. The Fed is expected to increase US interest rates by 25 basis points, to 2.5 per cent, although traders will be more focused on the so-called forward guidance notes. This is where policymakers set out their expectations of how interest rates are expected to change next year. President Trump has criticised Fed Chair Jerome Powell in a series of explosive tweets over his central bank’s policy of raising interest rates, saying he is making “yet another mistake”. 

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Mr Trump is concerned that the recent strength of the US economy could be undermined by higher interest rates, which will bolster demand for the US dollar, thus making exports more expensive, and hit indebted consumers.

In his latest tweet, Mr Trump urged Mr Powell to “feel the market” and not to “just go by the numbers” when setting interest rates.

There is not much in the way of fresh UK political news to influence the pound today, although the latest raft of inflation data printed this morning and proved to be broadly positive.

November’s Consumer Price Index fell to 2.3 per cent, down from 2.4 per cent a month earlier, meaning people, on average, will have a little extra money in their wallets this Christmas. 

Pound US dollar exchange rate: GBP is holding steady against USD (Image: GETTY)

Other inflation data, including core producer prices and retail prices, held up as expected, indicating resilience in the UK economy.

Before this evening’s Fed rate decision we’ll see some US existing homes sales data, which is expected to remain strong – although US dollar investors will be sensitive to any signs of a decline following market rumours of a slowing in the US property market.

After that, the Federal Reserve is expected to enact its interest rate hike, but with a 25 basis point rise already priced-in there is unlikely to be any effect on the pound US dollar exchange rate.

Instead, markets are looking for a so-called ‘dovish hike’ in which interest rates are raised but the guidance points towards a slowing down or pause in the path of 2019 rate hikes.

If the Fed sounds overly-dovish in its forward guidance we can expect to see some upside movement in the pound US dollar exchange rate.

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