The pound finds itself around a cent lower against the dollar this morning, with the currency pair slipping from $1.2810 to $1.2705.Sterling has lost ground after the U.S. dollar strengthened overnight following the Federal Reserves (Fed) decision to increase its benchmark interest rate by 0.25 per cent yesterday evening.
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As many expected, Fed Chair Janet Yellen announced the U.S. central bank had increased interest rates for the second time this year, with policymakers voting in favour of hiking rates to a range of 1% to 1.25%.
The decision leaves U.S. interest rates at its highest level since 2008, and gives the dollar a much needed boost after it lost ground yesterday afternoon following weaker than forecast inflation and retail sales figures.
GBP/USD graph
Along with the interest rate rise the Fed also announced they would start to look at reducing its $4.2 trillion bond portfolio. The Federal Reserve currently hold $4.2 trillion of mortgage-back securities and Treasury bonds, which were purchased following the financial crisis.
What else could impact the GBP/USD exchange rate today?
This afternoon we will hear from the Bank of England (BoE) and Governor Mark Carney. The BoE are set to announce their latest interest rate decision, monetary policy summary and how the Monetary Policy Committee (MPC) voted.
It is highly unlikely the BoE will take any action today, as they have repeatedly stated they will not look at raising interest rates until after the UK has left the EU.
However, with figures confirming UK inflation had risen to 2.9% earlier in the week, some of the other MPC members could be swayed into voting in favour of a hike.
Over the last few months one member of the MPC (Kristen Forbes) has been voting for an immediate increase, if an extra one or two members now feel the same we could see the pound strengthen in the next couple of hours.
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