GBP/USD rose on Wednesday, recovering from 2-year lows below 1.20 in the previous session, as investors hoped rising expectations of more aggressive Fed action to fight inflation would influence the BoE this week, though sterling remains challenged until UK policymakers take up the charge.
Cable rose as high as 1.2125 in early NorAm before drifting back toward 1.2060.
Markets foresee the Fed raising rates by an extraordinary 75bps FEDWATCH later on Wednesday, outpacing projections for the BoE, which is seen more likely to deliver a quarter-point hike, with only a 40% chance of a 50bps increase calculated on Eikon BOEWATCH.
The growing divergence in U.S.-UK rate expectations, currently at 86bp by the Fed and BoE December meetings, has pushed GBP/USD steadily lower, from late March 2022 highs by 1.33 to current levels near 1.20, and under current conditions is likely to exacerbate putting the March 26 2020 low at 1.1778 and March 25 low at 1.1640 in view.
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