Exchange Rates – GBP to USD Boosted by Branching BoE Policymakers
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A divided camp is not necessarily a bad thing, it seems. The lack of a unanimous vote on interest rates, outlined by the recent Bank of England (BoE) minutes from their most recent monetary policy meeting, has firmed up the Pound Sterling against most of its major peers.
Yesterday saw a bullish run for the ‘Greenback’ (USD) against the Pound after a combination of bad inflation data from the UK and good inflation data from the US.
The year-on-year UK Consumer Price Index (CPI) was expected to fall from 1.9% to 1.8%, but the actual figure was a disappointing 1.6%. The CPI declined by 0.3% in July on a month-on-month basis, outstripping expectations for a drop of -0.2% and wiping out June’s consumer price gain of 0.2%.
The bad news got worse when the UK Retail Price Index fell below expectations recording a decline from 256.3 to 256.0.
The result of the duo of dismal inflation data releases caused the Pound to fall across the board.
Yesterday was a very different story for the US Dollar. The US Consumer Price Index met with the forecast figure of 2.0%, which is in line with the Federal Reserve’s target. Another particularly positive result came from Housing Starts which was forecast to rise 8.1% after declining by -4.0% the previous month but it actually jumped by a whopping 15.7%.
The combination of the UK data failing to meet forecasts, and the US data exceeding forecasts saw the Pound to US Dollar exchange rate dive to the lowest level since April; depreciating by over 1% in less than 8 hours.
The Pound Sterling to US Dollar exchange rate has hit a low today of 1.6597.
Today was a different game for Sterling. The Bank of England published the minutes from their most recent monetary policy meeting. The publication revealed that the decision to maintain the current interest rate was not a unanimous one. Two of the nine policymakers, Martin Weale and Ian McCafferty, voted to increase the current rate by 25 basis points. The two dissenting policymakers argued that the present economic circumstances ‘were sufficient to justify an immediate rise in bank rate’.
Despite the fact that the majority of policymakers opted to maintain the interest rate, the division makes a refreshing change when compared to the previous meetings. In fact, this is the first time that the committee has been divided on the subject of interest rates since July 2011. The result of this division has been increased speculation on a pre-2015 rate hike and has seen the Pound strengthen against the US Dollar.
US Domestic data has been a little quiet in terms of economic weighting and the potential for market movement. Economists will be looking ahead to tonight’s publication of the Federal Reserve minutes. Shelly Smith, writing for Bloomberg, states ‘The Fed minutes may give investors more clues on the outlook for U.S. interest rates, after data yesterday showed inflation remains below target, even as the housing market gathers steam’.
Forecast for the Pound to US Dollar Exchange Rate
Tomorrow will see a large number of domestic data releases pertaining to both the UK and the US.
Year-on-year UK Retail Sales has the potential to spark movement. The year-on-year figure is anticipated to fall from 4.0% to 3.5%. Those invested in the Pound will be hoping for a better-than-forecast figure so the Pound can maintain its current upward trend.
UK Public Finances and Public Sector Net Borrowing will also be of interest as both carry sufficient weight to provoke Sterling movement.
There are also plenty of US domestic data releases tomorrow. Continuing Claims, Initial Jobless Claims, Manufacturing PMI, Existing Home Sales, Leading Indicators and Philadelphia Fed will all be of interest to those invested in the ‘Greenback’.
Friday will be of particular importance in terms of US economic standing. Federal Reserve Chair Janet Yellen will address global central bankers at a symposium in Jackson Hole, Wyoming. Every word spoken will be intensely scrutinized in order to gauge whether the recent run of positive domestic data has made policymakers more inclined to increase the interest rate ahead of schedule. Jeff Greenberg, senior economist at J.P. Morgan Private Bank, stated; ‘The FOMC minutes are telling us about what happened three weeks ago, and Jackson Hole, given its precedent for signalling meaningful policy shifts, has taken on this very elevated status; it gets that extra attention even if it is just an academic conference’.
The Pound Sterling to US Dollar exchange rate hit a high today of 1.6679.