- GBP/USD is likely to display a vertical downside move after surrendering the critical support of 1.1360.
- Fed’s full percent rate hike will widen the Fed-BOJ policy divergence.
- UK’s labor market and growth projections do not support further policy tightening.
The GBP/USD pair is hovering around the critical support of 1.1360 in the Asian session. The asset is expected to witness a sheer downside after dropping below the support mentioned above on expectations of widening Federal Reserve (Fed)-Bank of England (BOE) policy divergence.
The scheduled monetary policy meeting of the Fed on Wednesday is expected to conclude with a third consecutive 75 basis points (bps) rate hike or to a greater extent, with hawkish guidance and a bleak growth outlook. Price pressures have failed to display meaningful exhaustion signals led by higher-than-expected August inflation print readings for both headline Consumer Price Index (CPI) and core CPI. Therefore, the Fed has no option but to paddle up the pace of hiking interest rates.
Well, there is no denying the fact that the BOE will also hike its interest rates in its monetary policy meeting scheduled on Thursday. The UK households are also facing the headwinds of forced inflated payouts. Growth prospects and labor market conditions are not lucrative for tightening the policy. Despite that BOE Governor Andrew Bailey will swallow the bitter gulp and is expected to announce a rate hike by 50 bps. The expectations of a higher rate hike extent by the Fed are supporting the greenback bulls.
This week, the UK economy will also report the S&P Global PMI. The Manufacturing and Services PMI are seen at 47.5 and 50 respectively. A mixed performance is expected by the UK economy on the PMI front.
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