GBP/USD falls towards 1.1330 after hitting a new multi-year low

• The GBP/USD pair has reached a new 37-year high around 1.1300.
• Most economists are bracing for another sharp hike from the Fed along with updated projections for the US economy.
• The Bank of England will meet on Thursday and analysts estimate a rate hike of 50 basis points.

GBP/USD updates 37-year lows during the American session, falling 0.38%, ahead of the FOMC decision, as geopolitical tensions rise in Eastern Europe. A risk-off drive across the currency complex keeps the dollar in the driver’s seat, hitting a two-decade high above 111.00, while most G8 currencies are falling.

Earlier, GBP/USD hit a daily high at 1.1384, but Russian President Vladimir Putin’s comment sparked a flight to safety, causing the major currency to slide to a fresh yearly low at 1.1304. At the time of writing, GBP/USD is trading at 1.1333.

GBP/USD falls on the rise of the USD before the decision of the Fed and the Bank of England

Sentiment remains upbeat ahead of the FOMC decision, with European and US stocks rising. US Treasury yields remain depressed, except for the US 2yr bond yield, which crossed the 4% threshold during the day. Today the US Federal Reserve is expected to raise the Federal Funds Rate (FFR) by 75 basis points, to the 3-3.25% zone, into restrictive territory, according to the latest Summary of Economic Projections ( SEP) revealed in June. However, a move of 100 basis points should not be ruled out, as the odds of a rate hike of that magnitude are 18%.

In addition to revealing the monetary policy statement, the Fed will update the SEP, which could give us some clues about Fed officials’ projections for US growth, unemployment, inflation and interest rate levels. interest. When it comes to interest rates, most investors expect the “dot-plot”, in which all monetary policy makers outline the future path of the Federal Funds Rate (FFR). Much of Wall Street estimates a hawkish tilt to end 2022 around the 3.75%-4% range and, by 2023, approach the 4-450% zone.

The US dollar index, which measures the greenback against six pairs, is trading at a two-decade high of around 111,000, up 0.74%, breaking the 111,000 mark for the first time. By contrast, the ten-year US bond yield is virtually flat at 3,571%.

Elsewhere, the US economic docket revealed that August Existing Home Sales fell 0.4%, less than expectations of an estimated 2.29% contraction and also better than July’s 5.9% drop.

On Thursday the Bank of England (BoE) will meet, and the consensus estimates that the central Bank will raise the Bank’s interest rate by 50 basis points. At the same meeting, the BoE is expected to start its quantitative tightening (QT), with direct sales of its £838bn on its balance sheet at a rate of £10bn per quarter.

what to watch

The US economic docket will include the US Federal Reserve’s monetary policy decision at 18:00 GMT, followed by Chairman Jerome Powell’s press conference at 18:30 GMT.

Technical levels