The British pound edged lower in the European market on Wednesday against a basket of global currencies, giving up its highest level in ten weeks against the U.S. dollar, due to correction and profit-taking activity, coinciding with the U.S. currency holding steady ahead of the Federal Reserve’s policy decisions.

The Bank of England meets tomorrow, Thursday, to discuss monetary policy tools appropriate for the developments in the U.K. economy, with full expectations that British interest rates will remain unchanged.

To reprice the probabilities of a British rate cut during the remainder of this year, investors are awaiting the release later today of key U.K. inflation data.

Price Overview

• GBP exchange rate today: the pound fell against the dollar by 0.1% to (1.3639$), from today’s opening price of (1.3652$), recording a high of (1.3660$).

• On Tuesday, the pound rose by 0.35% against the dollar, marking a second consecutive daily gain, and reached its highest level in ten weeks at 1.3672$, supported by the decline in the dollar and U.S. yields.

U.S. Dollar

The dollar index rose on Wednesday by less than 0.1%, holding above a ten-week low at 96.56 points, reflecting a slight rebound in the U.S. currency against a basket of global peers.

In addition to buying activity from low levels, this rebound comes as investors pause from building new short positions while awaiting the results of the crucial Federal Reserve policy meeting.

The U.S. central bank is expected to cut interest rates by only 25 basis points, despite continued pressure from Donald Trump on U.S. monetary policymakers to implement deeper cuts to address risks in the housing market.

British Interest Rates

• Following mixed labor market data from the U.K. on Tuesday, market pricing for a 25 basis point rate cut by the Bank of England at Thursday’s meeting remains below 20%.

• The Bank of England meets tomorrow to discuss monetary policy in light of recent U.K. economic developments, particularly growing concerns about financial stability.

• The vote on cutting British interest rates during the August meeting revealed clear division among members over the path of monetary easing.

U.K. Inflation Data

To reprice the existing probabilities regarding British interest rates, investors are awaiting the release later today of U.K. inflation data for August, which is expected to strongly influence the Bank of England’s policy path.

At 07:00 GMT, the consumer price index is expected to rise by 3.9% year-on-year in August, compared with a 3.8% increase in July. The core CPI is expected to rise by 3.7% year-on-year, down from 3.8% in the previous month.

Outlook for the Pound

At Economies.com we expect: if U.K. inflation data comes in higher than market forecasts, the probability of a British interest rate cut before the end of this year will decline, which would push the pound to higher levels against the U.S. dollar, reaching fresh multi-month highs.

The Japanese yen rose in the Asian market on Wednesday against a basket of major and minor currencies, extending its gains for the third consecutive day against the U.S. dollar, recording the highest level in two months, supported by the weak performance of the U.S. currency ahead of an expected Federal Reserve decision to cut interest rates by about 25 basis points.

The important monetary policy meeting of the Bank of Japan begins tomorrow, Thursday, with decisions due on Friday, where interest rates are expected to remain unchanged for the fifth consecutive meeting.

Price Overview

• Japanese yen exchange rate today: the dollar fell against the yen by about 0.2% to (146.21¥), the lowest since July 24, from today’s opening price of (146.48¥), with a high of (146.55¥).

• The yen ended Tuesday’s session up by 0.6% against the dollar, marking its second daily gain in a row, due to renewed pressure from the U.S. administration under Donald Trump on the Federal Reserve.

U.S. Dollar

The dollar index fell on Wednesday by less than 0.1%, extending its losses for the third consecutive session, close to touching a ten-week low at 96.56 points, reflecting the continued weakness of the U.S. currency against a basket of global currencies.

This weak performance comes as Trump renewed pressure on Federal Reserve policymakers to implement deeper interest rate cuts. The U.S. central bank is expected to announce later today a benchmark rate cut of about 25 basis points.

In a social media post on Monday, Donald Trump urged Federal Reserve Chairman Jerome Powell to implement a “larger” cut in the benchmark interest rate, citing risks facing the U.S. housing market.

Bank of Japan

• The Bank of Japan meets tomorrow, Thursday, to discuss the monetary policy suitable for the developments of the world’s fourth-largest economy, with decisions to be announced on Friday.

• Market pricing of the probability that the bank will raise Japanese interest rates by a quarter point at this meeting is currently around 20%.

• With expectations steady for keeping Japanese interest rates unchanged for the fifth consecutive meeting, focus will similarly be on Governor Kazuo Ueda’s comments regarding the future policy path.

Outlook for the Yen

At Economies.com, we expect the Japanese yen to continue moving in the positive zone against the U.S. dollar, especially if the results of the Federal Reserve meeting come in less aggressive than markets are currently anticipating.

Most cryptocurrencies rose during trading on Tuesday amid optimism in the markets that the Federal Reserve is moving toward cutting interest rates.

Economic data released today showed an increase in the U.S. retail sales index during August by 0.6%, while analysts had expected the index to grow by 0.2% after growth of 0.5% during July, which was revised upward to 0.6%.

The Fed meeting began today, Tuesday, and ends tomorrow, Wednesday, with widespread expectations of an interest rate cut of 25 basis points, amid Trump’s pressure to lower borrowing costs at a faster pace.

According to the FedWatch tool from CME Group, markets see a 99.6% probability of a 25 basis point cut, versus only a 0.4% chance of keeping rates unchanged.

Ripple

On the trading front, the price of Ripple rose by 1.9% to $3.05 on the CoinMarketCap platform as of 21:18 GMT.

Federal Reserve officials meet on Tuesday and Wednesday in a pivotal meeting under unprecedented circumstances.

It is expected that monetary policymakers, at the conclusion of their two-day meeting on Wednesday, will announce the first interest rate cut since December, in an attempt to support the slowing U.S. labor market, with hopes that the broad tariffs imposed by President Donald Trump will have only a limited impact on inflation.

But there is an “elephant in the room” occupying discussions about the U.S. economy: Trump’s intense effort to reshape the top of the Federal Reserve.

The Senate on Monday confirmed the appointment of Stephen Miran, Trump’s senior economic adviser, to the Fed’s Board of Governors to fill a vacant seat expiring next January, with the possibility of extension. Miran confirmed that he would not commit to resigning at the end of the term if no permanent successor is appointed. After being sworn in on Tuesday morning, he is now able to vote in this week’s monetary policy meeting.

In addition, Lisa Cook, a member of the Board of Governors whom Trump attempted to remove in late August, will also vote. An appeals court rejected on Monday Trump’s attempt to dismiss her, while her lawsuit against the removal decision proceeds. Cook is the first Fed Board member to face an attempted dismissal.

The latest meeting is extraordinary, not only because the central bank is finally changing its strategy on interest rates, but also because of the developments related to its powerful board, amid increasing pressure from the Trump administration on an institution long considered politically independent.

The main reason behind the cut

The basic motives behind cutting borrowing costs for the first time in nine months are increasing signs of labor market weakness, along with a growing conviction among Fed officials that tariff-driven inflation may be temporary.

During the summer, job growth was weak: employers added only about 29,000 jobs on average during the three months ending in August, a rate slightly higher than July, but still the weakest since 2010 except for the pandemic period.

Also, the number of unemployed people seeking work exceeded the number of available jobs, while new jobless claims in the week ending September 6 rose to their highest level in nearly four years. Likewise, the number of people unemployed for more than 26 weeks in August reached its highest since November 2021.

A preliminary revision of employment data for the year ending in March, published last week, showed that the U.S. labor market was weaker than believed before entering the summer.

Fed Chair Jerome Powell paved the way for this cut during a notable speech in late August when he said that “downside risks to employment are increasing.” Other officials echoed these concerns, the most prominent among them initially being Governors Christopher Waller and Michelle Bowman, both Trump appointees, who supported a rate cut in July.

The Fed’s new economic projections, due on Wednesday, are set to reveal how fast and deep interest rate cuts will be in the coming months amid the fragility of the labor market.

The Fed’s position on tariff inflation

Although inflation has risen in recent months — due to Trump’s broad policies, especially tariffs — Fed officials have become more convinced that any increase may be temporary.

The consumer price index rose in August by 2.9% year-on-year, in line with economists’ expectations, according to Labor Department data last week. For months, consumer inflation readings have been consistent with forecasts, despite the confusion caused by tariff implementation.

San Francisco Fed President Mary Daly recently wrote that “price increases associated with tariffs will be one-off.” St. Louis Fed President Alberto Musalem said in a speech this month that he expects “tariff effects to work their way through the economy within two to three quarters, and their impact on inflation to fade thereafter.”

Christopher Waller confirmed in a speech in Miami on August 28 that “inflation has risen since the first quarter, but these figures include the effects of increased tariffs on imports, which I expect will only temporarily raise inflation.” He added: “Most forecasts indicate that annual inflation will continue to rise slowly for a few more months, with the monthly tariff effects fading by early 2026.”

An unprecedented pressure campaign from Trump

While Fed officials try to understand a complex economic puzzle, the Trump administration continues to exert pressure on the central bank, which has traditionally enjoyed political independence.

Since the beginning of his second term, Trump has repeatedly and publicly criticized Powell and the Fed for refusing to cut interest rates this year. Monetary policymakers postponed the rate cut until this week to first see the effects of Trump’s policies.

Trump had threatened earlier this year to dismiss Powell, but backed down after advisers warned him that it could spark sharp volatility in financial markets. In July, the administration used the Fed headquarters renovation project in Washington — with a cost of $2.5 billion — as a pretext to try to remove Powell, accusing him of mismanagement. Trump and Powell engaged in a public dispute over the project’s total cost.

Trump is also now attempting to remove Cook on allegations of mortgage-related misconduct, still under Justice Department investigation. However, the courts have kept Cook in her position while her case against the dismissal continues. Recent documents — reported by the Associated Press — showed that Cook’s apartment in Atlanta, which the administration says is one of two homes she identified as her primary residence, had been declared as a vacation home. Cook denied any wrongdoing.

While Cook’s status remains pending, Miran’s appointment has raised concerns among Democrats because of his closeness to the president. But he confirmed his commitment to ethics laws, stressing that he would express independent views on the economy. He said during his confirmation hearing: “I am very independent-minded, as demonstrated by my willingness to depart from consensus, and I expect to continue doing so if confirmed.”

Trump has expressed his desire for Republicans to form a majority within the Fed’s Board of Governors, and Miran’s confirmation process was accelerated — taking only about a month from nomination to swearing-in, while usually it takes several months — allowing him to participate in the September meeting.

Most observers already expect the Fed to announce a cut of no less than a quarter percentage point at the conclusion of the meeting, whether or not Miran participates.