Sterling-dollar treads water as Fed rate cut bets climb

GBPUSD inches higher after three days of losses, trading around 1.3160 early Friday. The pair holds ground as the US dollar struggles amid improving Federal Reserve rate cut bets. According to the CME FedWatch Tool, markets are now pricing in 71% probability of a Fed rate cut in December, up from 66% the previous day.

However, the GBPUSD pair lost ground as the greenback received support following comments from the Fed Chair Jerome Powell, noting that the central bank is struggling to balance its dual mandate of controlling inflation and supporting employment due to limited data availability amid the ongoing US government shutdown.

Powell cautioned that policymakers may have to adopt a wait-and-see approach until official data reporting resumes. He also added that another rate cut in December is far from certain, emphasising that the outlook remains uncertain.

The US Fed delivered a 25-basis-point rate cut on Wednesday, lowering its benchmark rate to a range of 3.75-4.0% in a 10:2 vote. The decision was not unanimous, as Fed Governor Stephen Miran supported a larger 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid voted to keep rates unchanged.

The Pound Sterling faced challenges as growing expectations for Bank of England rate cuts were fueled by softer inflation data, with the BRC reporting further declines in food price inflation.

Additionally, concerns mounted that the upcoming November budget could significantly weigh on economic growth.

During Wednesday’s parliamentary session, Prime Minister Keir Starmer declined to rule out potential increases in income tax, national insurance, or value-added tax.

Meanwhile, reports indicated that the Office for Budget Responsibility (OBR) plans to downgrade the UK’s productivity growth forecast by about 0.3%, a revision that could result in a £20 bln shortfall in public finances.

(Source: OANDA)