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Most Federal Reserve officials expect to raise interest rates again before the year is out, keeping the dollar supported.
The Federal Reserve's September minutes show most policymakers expect another interest rate hike by year-end, keeping the dollar supported and the Pound to Dollar exchange rate pinned near its 2026 lows.
Investment bank analysts say the minutes, released Wednesday evening, confirm December as the likely date for the Fed's next move.
"Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," say the minutes.
All 12 voting members backed September's quarter-point hike to a range of 3.75% to 4.00%.
Many officials described a higher rate path as "prudent on risk-management grounds, providing insurance against inflation remaining persistently above target due to stronger-than-expected demand or further adverse supply shocks."
Several officials said they viewed the current policy rate as "not restrictive or only mildly restrictive", a signal that the Fed sees room to tighten further without choking growth.
Officials named two sources of inflation pressure: oil and fuel prices pushed up by geopolitical developments in the Middle East, and "surging AI-related investments".
Fed staff now project inflation will not return to the 2% target until 2029.
Barclays and CBA Look for a December Hike
"They reinforce our expectation of one additional hike this year, even though subsequent data and Fed communications signal patience in October," says Marc Giannoni, Chief US Economist at Barclays.
Giannoni identifies a return of risk management as the minutes' most notable development, with many officials supporting higher rates as insurance against stronger demand, fresh supply shocks and persistent inflation.
"The minutes reinforced the view that the Fed's hiking cycle is not over," says Carol Kong, Currency Strategist at Commonwealth Bank of Australia (CBA). "We continue to expect the next hike to be delivered in December."
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistPNC goes further, with Chief Economist Gus Faucher forecasting a hold at the 27-28 October meeting, a hike in December and another in March, taking the Fed funds rate to 4.25% to 4.50% by spring.
Money markets price around a one-in-five chance of an October hike, with a December move almost fully priced.
October was taken off the table by September's payrolls report, which showed just 29,000 jobs were added against expectations for 90,000 (more).
The minutes keep December firmly in play, and with it the yield support behind the dollar, which trades at an 18-month high.
GBP/USD Holds Near 2026 Lows
Today, the Pound to Dollar rate is at 1.3207, below both its 21-day moving average at 1.3318 and its 100-day average at 1.3404.
The 21-day average has crossed beneath the 100-day following the slide from mid-September, confirming the near-term trend points lower.
Above: GBP/USD at daily intervals with the 21-day and 100-day moving averages.
The pair has been held in a 1.3150 to 1.3300 range for the past two weeks, with the 2026 low at 1.3140 marking the floor.
"Renewed risk negativity, as oil prices have rebounded, encouraging additional USD yield based support, underlines immediate GBP/USD downside given Sterling's high beta status," says Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets.
Stretch eyes a correction back towards the 1.3140 low and says only a recapture of the 30 September peak at 1.3311 would ease the negative bias.
The Pound Side: BoE Hike Bets Offer Support
Turning to the UK, markets price around an 85% chance of a Bank of England rate hike on 5 November, and Governor Andrew Bailey is among several policymakers speaking today.
CBA says hawkish comments could lift November hike pricing further and provide modest support to the Pound to Dollar rate.
The Australian lender judges the market expects too much from the Bank of England, however, forecasting one more hike against the four that are priced.
That gap underpins CBA's forecast for the Pound to Dollar rate to fall to 1.24 by mid-2027, with limited UK fiscal space flagged as a further weight on the pound.
Bank J. Safra Sarasin expects the pound to hold up well in the near term, while warning the Fed will likely need to hike more than other G10 central banks as AI-fuelled US growth runs ahead.
The dollar is driving the move, which is why the Pound to Euro rate sits at a one-year high even as the pound struggles against the dollar.
Our house view is that the pound stays capped into the 28 October Budget and recovers afterwards, with the UK's economic outperformance carrying it higher into year-end provided the Budget passes as a non-event.
The Fed decides one day before the Budget, so the dollar side of the trade will be set before UK fiscal risk clears.
Fed Governor Christopher Waller speaks on the economic outlook at 15:30 London time, following US jobless claims at 13:30.
Endorsement of the minutes from Waller would keep the Pound to Dollar rate heading for 1.3140, while a recovery would first need to clear 1.3274 and then 1.3302.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist
