Pound Buffeted by Market Volatility as Traders Prepare for Fed

  • Crude oil fluctuates in New York trading, close to 12-year low
  • Fed to conclude two-day meeting with interest-rate decision

The pound fell, undermined by continued talk of a potential U.K. exit from the European Union and global market volatility.

Sterling weakened on Wednesday against all of its 16 major peers, as oil swung between losses and gains in New York near a 12-year low. Stocks erased declines in Europe. The Federal Reserve is set to release its first policy statement since it raised interest rates from near zero last month, helping set off the dollar’s rally versus the pound.

“Markets are still nervous about the upcoming EU referendum, with the latest poll showing that voting recently has been split 50-50,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. An explanation is “the possible nervousness creeping into the market that the Fed won’t be as dovish or cautious as expected by the market, and this risk could strengthen the dollar and weaken the pound,” he said.

An ICM poll on Wednesday showed voters in a future referendum split between the U.K. staying versus leaving the EU.

The pound fell 0.7 percent to $1.4247 at 5:15 p.m. London time, after sliding to an almost seven-year low of $1.4080 on Jan. 21. It declined 0.7 percent to 76.28 pence per euro, after touching its weakest level on Jan. 20 in a year.

Sterling has declined more than 3 percent versus the dollar in 2016 as market turmoil sparked by China and the oil slump help drive away investors who are already witnessing an uneven domestic economic recovery.

Fed Chair Janet Yellen and her colleagues on the Federal Open Market Committee are forecast by economists to leave the target range for the federal funds rate at 0.25 percent to 0.5 percent when they conclude a two-day meeting in Washington on Wednesday.

“Expect the risk environment to remain very choppy in and around the Fed event tonight,” said Viraj Patel, a currency strategist at ING Bank NV in London.

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