FX round-up: Sterling gains on limp dollar ahead of expected Fed rate hike

Sterling managed gains against a limp US dollar but was otherwise lower on key crosses, with global markets now on 'Fed Watch' ahead of the US interest-rate call tonight.

The US Federal Reserve was widely expected to lift its benchmark rate at 19:00 BST, but macro data out stateside meant greater emphasis would now be on Fed chair Janet Yellen's commentary.

Traders would be looking for any hint of the Fed's future rate-setting policy for the remainder of 2017.

At 17:13 BST, sterling was up 0.43% to $1.2809, but down 0.19% to €1.1355. It was down on the aussie, kiwi, rand and yen, but up a little on the loonie.

"Dealers were quick to dump the US dollar in the wake of inflation and retail sales numbers that missed investors' expectations," said David Madden at CMC Markets UK.

Their disappointment was plain to see on line charts.

"Traders feel that an interest rate hike from the Federal Reserve tonight is inevitable, but the focus will be on the outlook for the remainder of the year," said Madden.

Connor Campbell at Spreadex opined that sterling's gains against the dollar erased most of the FTSE's growth by the close of trade on London Stock Exchange.

"It is unlikely that this data-slump will halt the Fed's long signposted rate hike this evening," said Campbell.

"However, it may cause the central bank to strike a tone far less hawkish than initially planned, something that in turn could delay a potential interest rate increase in September."

Sterling's course on Wednesday was set against a weave of disappointing UK economic data.

In the three months to April, UK average earnings rose just 1.7%, versus confirmation yesterday of inflation at 2.9%.

Much of this was linked to sterling's material bounds lower after the Tory-called non-binding Brexit referendum last year. The Tory-called election's outcome also saw sterling dive.

"Despite the poor average earnings numbers from the UK, the GBPUSD is higher on the day as the weakness in the greenback outweighed the decline in the pound in the morning session," said Madden.

"The Bank of England will meet tomorrow, and the central bankers will have a hard task ahead of themselves, as the cost of living is rising, while earnings are falling."