Federal Reserve Interest Rate Decision: GBP/USD, EUR/USD and US Dollar Exchange Rate Outlook

Key Highlight 

• The US Federal Reserve begins its two-day policy meeting today, with the interest rate decision due tomorrow at 19:00 BST. Although rates are still expected to remain unchanged, markets are assigning a 38% probability of a rate increase, keeping the US dollar well supported and market volatility elevated. 

• Today's US Consumer Confidence data, released at 15:00 BST, will be closely watched as the final major economic indicator before the Fed announcement. A stronger than expected reading would reinforce expectations that interest rates may need to remain higher for longer, providing further support for the dollar. 

• For businesses with US dollar exposure, sterling has weakened over recent weeks, increasing the cost of buying dollars and highlighting the importance of monitoring upcoming central bank decisions. 

Market Recap 

The US dollar remained firm as investors positioned themselves ahead of this week's Federal Reserve meeting. Sterling declined to its weakest level in four weeks and has fallen in six of the last eight trading sessions, steadily increasing the cost of purchasing US dollars throughout July. 

Markets continue to price a 38% chance of a US interest rate increase at tomorrow's decision, making this one of the more closely watched Fed meetings of the year despite expectations for rates to remain on hold. 

Geopolitical developments also remained in focus after President Trump commented that there is "a good chance" of reaching an agreement with Iran. Progress in negotiations could reduce demand for the safe haven US dollar, while any deterioration in talks would likely strengthen it further. 

Risk appetite weakened following a sharp decline across global semiconductor stocks, with South Korea's benchmark index falling 10%. The move encouraged investors towards safer assets, adding further support to the dollar while placing modest pressure on sterling. 

Market Overview 

Attention is firmly on the Federal Reserve over the next 48 hours, with tomorrow's policy decision expected to drive currency markets. Before then, today's US Consumer Confidence release at 15:00 BST could shape expectations heading into the announcement. Strong economic data would strengthen the case for the Fed to maintain a hawkish stance and could increase support for the US dollar. 

EUR/USD 

The pair continues to trade within a relatively narrow range in the short term, with no clear direction established since late June. Consumer Confidence today and tomorrow's Fed decision are expected to provide the next significant catalyst. A stronger US outlook combined with a more hawkish Fed could push the euro below its June lows. 

Looking further ahead, the medium-term outlook continues to favour a stronger US dollar. The euro has been trending lower since early May, while expectations that the European Central Bank will reduce interest rates in September could widen the policy gap in favour of the dollar. 

What this means for businesses 

If the euro falls back to its June low, purchasing $250,000 would cost approximately £1,150 more per €250,000. If the euro strengthens towards the top of its recent trading range, the same purchase could cost around £3,900 less, benefiting buyers while reducing returns for sellers. 

GBP/USD 

Sterling remains under pressure after falling to a four-week low against the US dollar, with lower lows forming since the middle of July. Tomorrow's Federal Reserve decision is likely to determine the next move, particularly if policymakers deliver a more hawkish message than markets expect. 

The medium-term outlook also continues to favour the dollar, supported by stronger US economic growth and a Federal Reserve that remains more hawkish than the Bank of England. However, Thursday's Bank of England meeting presents an additional risk should policymakers unexpectedly tighten policy. 

What this means for businesses 

If sterling falls back to its 2026 low, purchasing $250,000 would cost approximately £2,850 more. Conversely, if the pound recovers towards the May and June highs, buying $250,000 could cost approximately £4,600 less. 

GBP/EUR 

Sterling has softened against the euro during the second half of July, although the broader medium term trend still favours a stronger pound. Markets will look to Thursday's Bank of England decision for direction following the outcome of the Federal Reserve meeting. 

Over the longer term, higher UK interest rates compared with the eurozone continue to support sterling, although market positioning suggests some caution remains around the outlook. 

What this means for businesses 

If sterling falls back towards its previous breakout level, purchasing €250,000 would cost approximately £1,900 more. Should sterling strengthen towards its 2026 high, the same transaction could cost around £2,600 less. 

Bottom Line 

The Federal Reserve decision tomorrow at 19:00 BST is the defining event for currency markets this week. With markets assigning a 38% probability of a rate increase, today's US Consumer Confidence data will be an important indicator of whether expectations continue to shift in favour of a stronger US dollar. Businesses with upcoming US dollar or euro payment requirements should be prepared for increased volatility over the coming days. 

28th July 2026 

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