Pound Sterling falls against the US Dollar ahead of the Fed's monetary policy announcement

The Pound Sterling (GBP) dips slightly to around 1.3330 against the US Dollar (USD) during European trading hours on Wednesday. The GBP/USD pair faces pressure as the USD edges higher ahead of the Federal Reserve's (Fed) monetary policy announcement at 18:00 GMT, where the central bank is widely expected to keep interest rates unchanged in the range of 4.25-4.50%.

This will mark the third consecutive policy meeting where the Fed opts for steady rates, as uncertainty surrounds the impact of new economic policies by US President Donald Trump. Several Fed officials, including Chair Jerome Powell, have indicated that a “wait and see” approach is best until they gain clarity on how the new policies will influence inflation and the overall economic outlook.

US consumer inflation expectations have risen, with local business owners signaling that they will pass on the burden of high import duties to consumers. This development adds pressure on the Fed to take more time before adjusting monetary policy. Moreover, steady job growth, despite Trump’s tariff policies, limits the need for the Fed to act prematurely by cutting rates.

Daily Digest: Market Movers - Pound Sterling in Focus Ahead of BoE Policy

• The Pound Sterling takes a pause on Wednesday after a sharp rally the previous day. The British currency remains resilient against its peers as the United Kingdom (UK) and the US approach a bilateral trade agreement.
• A report from the Financial Times (FT) on Tuesday highlighted that both nations are nearing a trade deal, with the US agreeing to lower tariffs on UK steel and cars in exchange for the UK reducing tariffs on US autos and agricultural products and making adjustments to its digital services tax.
• Looking ahead, the main catalyst for the Pound will be the Bank of England’s (BoE) monetary policy decision on Thursday. The BoE is expected to cut interest rates by 25 basis points (bps) to 4.25%, marking its fourth rate cut in the current easing cycle that began last August.
• Investors will closely scrutinize the BoE’s guidance on both monetary policy and the economic outlook. Market analysts speculate that the BoE could signal more aggressive policy easing in response to the ongoing US-China trade war, with concerns rising over China potentially shifting its exports to other economies. The low-cost competitive advantage of Chinese products could weaken other countries' competitiveness if China increases its market share.
• In other developments, the US and China have agreed to resume trade talks this week. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer confirmed that they will meet their Chinese counterparts in Geneva. This will be the first confirmed meeting between the two economic giants since the imposition of reciprocal tariffs.
• Earlier this week, Secretary Bessent hinted that the US would engage with Beijing sooner, as the current tariff rates are unsustainable. A positive outcome from the US-China trade discussions would be beneficial for global risk assets.