Hawkish Fed rhetoric and Middle East tensions lift the USD, pressuring GBP before the Bank of England’s rate decision.
The GBP/USD pair dropped to 1.3345 in early European trading Thursday, as the US Dollar strengthened on hawkish Federal Reserve signals. Three Fed committee members voted for a 25-basis-point rate hike at Wednesday’s meeting, despite the central bank holding rates steady at 3.50%-3.75%. Fed Chair Jerome Powell indicated tightening measures have already impacted policy, but the committee remains ready to act if inflation accelerates.
The Bank of England is expected to keep rates unchanged at 3.75% later Thursday, as geopolitical risks, including US-Iran tensions, weigh on markets. Middle East hostilities have bolstered demand for the safe-haven USD, further pressuring the GBP. The Fed’s stance contrasts with market expectations for the BoE, which faces additional uncertainty from disruptions in the Strait of Hormuz.