The Pound Drops Below Its Long-Run Average As The Fed's Rate Passes Britain's

The Fed raised rates by a quarter point to 3.75-4.00% on Wednesday, the first hike since 2023, and the vote was 12-0. The middle of the new range is 3.875%, which puts US rates above the UK's 3.75% for the first time this year. GBP/USD has been down every session since September 10, Wednesday's drop was the largest of them by a distance, and the pair is trading just under 1.3400, under its 200-day average, which it hasn't been below since early August. The Bank of England meets on Thursday at 11:00 GMT.

The gap is small, and the Fed says it's going to get bigger

The UK's Bank Rate, which is what the Bank of England calls its main interest rate, has been 3.75% since December 2025, and the Bank has held it at every meeting since. The difference between the two rates is only an eighth of a point, but it's now the wrong way round for the Pound, and the Fed's forecasts say it widens from here. The committee expects its rate to be 4.1% at the end of this year and still 4.1% at the end of 2027. It also expects unemployment to stay at 4.1% through 2029, below the 4.2% it thinks of as normal. The Fed doesn't see a reason to stop for at least a year, and that's the gap the Pound is trading against.

Thursday's vote matters more than Thursday's rate

The Bank of England is expected to hold at 3.75% on Thursday, with the vote forecast at six to hold and three to raise, the same as July, when the three, Chief Economist Pill and external members Greene and Mann, wanted to go to 4% straight away. Almost nobody expects the rate to move, so what matters is how the vote splits. UK inflation came in at 3.1% in August, exactly as forecast, and the increase was mostly motor fuel, which a rate rise can't do anything about. That's the argument for the six. Factory gate prices rose 0.7% against a 0.3% forecast, and that's the argument for the three. If a fourth member joins them, the Pound's rate advantage starts coming back into view. The three lost in July, and the rematch was already on the calendar before the Fed moved. UK retail sales follow on Friday at 06:00 GMT, forecast to fall 0.2% after a 0.5% drop in July.

Levels and bias

Resistance: 1.3400, which the Pound traded through on Wednesday, then the 200-day Exponential Moving Average (EMA) just under 1.3450, then 1.3500, where the rally on the inflation release ended.

Support: Wednesday's low just above 1.3350, then 1.3300, the base the pair left in early August.

Bias: Bearish below 1.3400. The first objective is 1.3350 and the second is 1.3300. On the daily chart the Stochastic Relative Strength Index (Stoch RSI), a momentum gauge, is at 16 and has been flat there for a few days, so the selling is stretched and a bounce back to 1.3400 wouldn't change that. The bearish case is wrong if the Pound has a daily close above 1.3450.

GBP/USD daily chart