FOMC and Bank of England meetings in focus this week

Daily Currency Update

The FOMC and Bank of England meetings will be in focus this week. The market is pricing in a 75 basis point interest rate hike by the US Federal Reserve, however, traders will be watching to see if the Fed signals a smaller rate hike of 50 basis points at their December meeting.

The pound slid against the US dollar on Friday, but overall it was still its third consecutive weekly gain, its longest positive streak since February. After hitting a record low against the US dollar of $1.0327 in September, the pound staged a recovery after the new Prime Minster was put in place, and the US dollar softened on expectations that the US Federal Reserve might begin to slow the pace of monetary tightening.

Since Liz Truss’s resignation and the installation of Rishi Sunak as the new Prime Minister, markets have lowered their expectations for aggressive interest rate hikes from the Bank of England, as the new government looks set to reverse almost all of the previous administration’s tax cuts.

The Bank of England is expected to stick to a 75 basis point interest rate hike, and fiscal policy and politics are still likely to remain in focus as well. However, a rate hike of anything less than expected could weigh on the pound.