Sterling today: Pound flat as traders await Fed rate decision
Sterling traded little changed on Wednesday while the euro slipped slightly, as investors held back from major dollar bets ahead of today’s Federal Reserve rate decision.
Intelligence analysis by Llama
Investors are cautious ahead of the Federal Reserve rate decision, with sterling trading flat and the euro easing slightly. Francesco Pesole, FX strategist at ING, notes that the dollar index has shown little sensitivity to the recent decline in oil prices, but added that resilience will be tested heavily today.
Imagine you're at a big store, and you're not sure if they're going to raise the prices of things or keep them the same. That's kind of what's happening with the dollar and other currencies right now. Investors are waiting to see what the Federal Reserve will decide, and that's making the markets a bit nervous.
Analysis
Sterling and the Euro: A Tale of Two Currencies
Sterling traded little changed on Wednesday, while the euro slipped slightly, as investors held back from major dollar bets ahead of today’s Federal Reserve rate decision. The dollar index has shown little sensitivity to the recent decline in oil prices, but added that resilience will be tested heavily today.
Francesco Pesole, FX strategist at ING, notes that the dollar index has shown little sensitivity to the recent decline in oil prices. However, he added that resilience will be tested heavily today, with markets pricing a 25-30% probability of a hike. Pesole said that scenario would leave year-end rate expectations of 41bp broadly intact but still points to dollar downside, as a hold 'should trigger an unwinding of precautionary USD positioning, allowing the dollar to reconnect with the signal from lower oil prices.'
The pound hovered near its weakest level in almost a month as traders looked past domestic data toward the Fed and Thursday’s Bank of England decision. For the euro, ING flagged that renewed military strikes in the Gulf overnight warrant caution, though the bank believes EUR/USD may have already bottomed last week. 'For a sustainable move back above 1.15, two pieces are still missing: dovish Fed repricing, either through US data or communication, and a stabilisation in risk sentiment,' Pesole said, noting turmoil in the chip sector could cap gains despite improving Middle East headlines.
ING’s baseline case for a modest dovish Fed surprise points to a move into the 1.1400-1.1450 range over the coming days. ING’s forward view rests on the Fed holding with no more than two dissents; a hawkish surprise from Warsh or a broader hawkish vote split would likely keep the dollar supported and delay the anticipated euro and sterling recovery.
Key points
- Sterling traded little changed on Wednesday while the euro slipped slightly, as investors held back from major dollar bets ahead of today’s Federal Reserve rate decision.
- The dollar index has shown little sensitivity to the recent decline in oil prices, but added that resilience will be tested heavily today.
- Francesco Pesole, FX strategist at ING, notes that the dollar index has shown little sensitivity to the recent decline in oil prices.
- The pound hovered near its weakest level in almost a month as traders looked past domestic data toward the Fed and Thursday’s Bank of England decision.
- For the euro, ING flagged that renewed military strikes in the Gulf overnight warrant caution, though the bank believes EUR/USD may have already bottomed last week.
If the Federal Reserve decides to hold rates, it could lead to a recovery in the euro and sterling, as investors unwind their precautionary USD positioning. This could also lead to a stabilization in risk sentiment, which could help to cap gains in the chip sector.
If the Federal Reserve decides to hike rates, it could lead to a decline in the euro and sterling, as investors become more cautious. This could also lead to a destabilization in risk sentiment, which could help to cap gains in the chip sector.
