GBP USD Exchange Rate Poised for Central Bank Rate Decisions

GBP USD Exchange Rate Poised for Central Bank Rate Decisions

The pound slipped perilously close to its lowest level in 21 months on Wednesday ahead of central bank meetings on both sides of the Atlantic, before climbing back into the 1.25 range.

The Bank of England’s (BoE) Monetary Policy Committee announces the result of its latest interest rate vote on Thursday, with rate-setters expected to hike borrowing costs for the fourth consecutive meeting – which would mark the first such run in 25 years.

Pressure has been applied to the pound recently by expectations that the BoE may have to reduce the pace of policy tightening as it wrestles with above-target inflation and a cost-of-living squeeze that’s weighing on economic activity.

A survey published on Wednesday showed British shop prices surged in April at the fastest rate in more than a decade – more bad news for households caught in the deepening cost-of-living crisis.

Investors await Fed policy decision

Meanwhile, the Federal Reserve’s Federal Open Market Committee is expected to lift rates by 50 basis points following the conclusion of its two-day policy gathering on Wednesday – marking its first half-percentage point hike since 2000 and its first back-to-back hike since 2006.

The US central bank is also set to formalise plans to reduce its $9 trillion balance sheet, as it adopts a more aggressive approach to reining in elevated inflation.

The dollar side-stepped soft data from the US economy on Wednesday ahead of the Fed’s monetary policy decision.

US businesses added fewer jobs than expected last month, payrolls processing firm ADP reported on Wednesday. Private payrolls rose by just 247,000 in April, well under the 390,000 forecasts by economists and a big decline from March, which saw an upwardly revised increase of 479,000.

“In April, the labour market recovery showed signs of slowing as the economy approaches full employment,” said ADP’s chief economist, Nela Richardson.

The Institute for Supply Management’s (ISM) service-sector index printed a reading of 57.1 for April, down from 58.3 the previous month. The weaker than expected data fell short of the consensus for an increase to 58.5.

Looking ahead

The BoE interest rate announcement is centre stage on Thursday, with most economists predicting a 0.25 percentage point increase as the central bank attempts to forestall an economic slowdown.

Three notable data sets are slated for release from the US economy on Thursday: initial jobless claims for the previous week, nonfarm productivity for the first quarter, and unit labour costs for the first quarter.