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However, upside should be re-engaged before too long.
The pound to dollar exchange rate's (GBP/USD) post-Federal Reserve decision unwind extends into the weekend, although the fundamental setup still argues for a rise to the 2025 highs in the coming weeks.
The dollar was sold heavily ahead of the midweek decision in a sign that markets were front-running the decision, to the extent it became clear that a blow-out to the trade was increasingly likely.
That blow-out happened in the minutes following the decision itself, with the likes of GBP/USD spiking and then collapsing. This 'sell the fact' price action is not uncommon heading into major central bank decisions that will have far reaching consenquences.
The pound's ability to regain some of these losses was hampered by Thursday's Bank of England policy decision, which saw no change to interest rates but the offer of guidance that hinted at the likelihood of another cut before year-end.
For a market that was of the view that there would be no further cuts, this was a 'dovish' outcome that ultimately weighed across the GBP strip.
But, keep in mind it's the dollar that retains the upper hand in GBP/USD action, and it's for this reason the exchange rate can still head higher.
The Federal Reserve didn't just cut interest rates; it signalled a willingness to go further in the coming months, which should weigh on the U.S. Dollar.
"The onset of Fed easing has whittled at the yield advantage established earlier in the year (and helped contain dollar selling at the time). But the primary themes driving the drop still stand, even if many are now assumed to reflect the status quo. That should be enough to generate further pressure on the Greenback," says Nicholas Kennedy, FX Strategist at Lloyds Bank.
These themes include a slowing economy and softening labour market, while the post-tariff inflation spike has proven relatively sanguine. The Fed believes it can get away with more cuts without stimulating inflation, particularly if it relieves political pressures stemming from the White House.
"Although the dollar gained more ground, Fed fund futures suggest that investors remain adamant in expecting two more rate cuts this year – in October and December – and three additional in 2026. The divergence in expectations between the market and the Fed suggests that the dollar is unlikely to have a smooth ride hereafter," says Charalampos Pissouros, Senior Market Analyst at XM.com.
Because of this, GBP/USD at 1.3750 isn't a stretch of a call.