Pound on the defensive ahead of FOMC rate decision tomorrow

Daily Currency Update

The pound is on the defensive against the US dollar and the euro as longer-term BoE interest rate expectations are coming under sustained pressure, despite the market forecasting another 75 basis point rate hike to 3% by the Bank of England later this week. There has been a lot of volatility with the UK market rate expectations, amid the many fiscal policy U-turns. Money markets are currently pricing in a peak bank rate of 4.75% which may provide the pound with some support for the short term.

The Federal Reserve is widely expected to raise its interest rate by 75 basis points to a range of 3.75% to 4.00%, its fourth such increase in a row. However, for the December meeting, fed funds futures have priced in a 55% chance of a 50 basis point rate increase, which is down from about 67% last week.