The British pound continues to lose ground. GBP/USD is trading at 1.3436. down 0.33%. Earlier in the day, the pound fell to 1.1304, its lowest level since 1985.
Fed expected to hike by 0.75%
The Federal Reserve holds its policy meeting later today, and is expected to deliver a third straight rate hike of 0.75%, which would bring the benchmark rate to 3.25%. Such a move would have added significance as it would raise the benchmark rate into restrictive territory, above the neutral rate level of 2.5%. This means that the Fed would have to be especially careful with future rate hikes. The markets have priced in a 0.75% increase, but there is a 15% chance of a massive full-point hike, which underscores that the markets have internalized that the Fed remains very hawkish.
Today’s FOMC meeting is about more than the size of the next rate hike. Investors will be keenly monitoring the Fed’s most recent forecasts for inflation, unemployment and interest rate levels. The Fed has designated inflation as public enemy number one, and views increases in unemployment and interest rates as painful but necessary in order to curb inflation.
The BoE will meet on Thursday, after its meeting was delayed to the mourning period for Queen Elizabeth. The markets have priced in a 50bp increase, although a 75bp hike, which last occurred in 1989, is also a possibility. Inflation remains red-hot at 9.9%, and a 75bp move would not only help in the battle against inflation, but will restore the BoE’s credibility, as the Bank has been widely criticised for its handling of inflation.
- GBP/USD faces resistance at 1.1384 and 1.1504
- There is support at 1.1269 and 1.1144
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