After a fall in UK inflation was recorded, now the Fed and Bank of England will decide where the exchange rate will go next.
GBP/USD daily chart
GBP to USD has fallen to 1.2368, with support below 1.2319. This support will be tested by volatility at central bank meetings.
The Federal Reserve’s latest interest rate decision is expected to put a pause on rate hikes. The Bank of England is expected to announce a rate hike on Thursday.
Official data released on Wednesday showed that Britain’s inflation rate unexpectedly fell to 6.7% in the year to August. Economists had predicted that the consumer price index would rise to 7.1% due to higher fuel prices.
The data comes ahead of the Bank of England’s decision, with experts now unsure whether the bank will raise interest rates by 0.25 percentage points to 5.5%. The European Central Bank raised interest rates by 0.25% to 4% last week, but signaled that it had ended its continuous rate hikes.
Economists had expected the Bank of England to raise interest rates on Thursday due to “exceptionally strong” wage growth data. But Wednesday’s inflation data could mean another rate hike is less likely.
Charles Goodhart, a former member of the Monetary Policy Committee, told The Independent that the inflation data made policymaking “precarious”, adding: “My guess is that these data may just give policymaking pause.”
Ken Wattret of S&P Global Markets said the market is currently pricing in a “50%” chance of another interest rate hike, saying: “Taking all factors into consideration, we still think another rate hike is more likely, but the latest Inflation data suggests it will certainly not be as easy as it looked not too long ago.”