British Pound to US Dollar (GBP/USD) Exchange Rate Lower, Monetary Policy Discussions Anticipated
The Pound is currently trading slightly lower against the US Dollar at 1.7120 as predictions for interest rate rises in the US circle the currency market.
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With the US boasting impressive and unexpected figures last week, the spotlight regarding interest rate hikes in the UK has shifted to the US.
Such favourable data has allowed the US Dollar to continue gaining at the start of this week against a basket of other major currencies.
Foreign exchange expert Vasileios Gkionakis stated: ‘Overall the Dollar is a bit stronger and that will remain in place over the next week. Rates in the US are going to grind higher, Dollar/Yen is going to grind higher and probably in the next week to two against the Euro as well.’
However the US Dollar has made gains against the Euro on Monday following unexpected negative German Industrial data.
The figure dropped to -1.8% in May, significantly further than the -0.3% drop seen in the previous month evading forecasts of a 0.0% figure.
An expert in the field, Ioan Smith, commented: ‘It’s just more evidence that overall economic growth has slowed down in the second quarter from the strong first quarter.’
However, the Pound has been on an upward trajectory against the US Dollar recently reaching high points not seen since 2008, after the strong and consistent publishing of UK data.
In spite of this Monday has seen Sterling trade lower after Thursday’s positive employment figures symbolised a gain for the US economy; the Pound has ranged from the day’s high of 1.7169 against the day’s low of 1.7116 this session so far.
Barclays representative, Jim McCormick, has stated: ‘Against the Dollar we’re probably about as far as we’re going to go because the risk here is the Fed’s going to have to start raising rates as well.’
With speculation that the Bank of England may increase rates by the end of 2014 still in circulation amongst economists, the Federal Reserve is hypothesised to introduce their rate hikes in the latter half of 2015.
However the currency pairing may be subject to fluctuation this week due to data publishing with the UK seeing the announcement of the Bank of England Interest Rate Decision on Thursday, which although forecast to remain the same at 0.50%, could shed light on the intention of rate hikes in the near future.
The US could gain further if it betters its Initial Jobless Claims data from June’s 315K on Thursday, however more important is the Meeting Minutes from the Federal Reserve on Wednesday.
At such a key point for the US Dollar, chairwoman for the Federal Reserve, Janet Yellen, may encourage a US Dollar rally if the result of the meeting minutes proves optimistic. Yellen has previously quashed any speculation of upcoming interest rate hikes describing them as a: ‘very blunt tool.’
Yellen previously stated: ‘Macroprudential policies such as regulatory limits on leverage and short-term funding, as well as stronger underwriting standards, represent far more direct and likely more effective methods to address… vulnerabilities. I do not presently see a need for monetary policy to deviate from the primary focus on attaining price stability and maximum employment.’
Despite Yellen’s comments, economists believe the Fed will have to respond to such positive US data, therefore this week will prove highly interesting for the Pound/US Dollar relationship, with the potential for monetary policy to be discussed by both central banks.