GBP to USD Forecast Today: US GDP and Fed Announcements Could Impact Risk Sentiment
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The hugely influential data release has the potential to spark volatility right across the market if it is seen to influence the Federal Reserve’s outlook for monetary policy.
Following the dismal -2.9% contraction in the first quarter investors expect a GDP score of around +3.0% this time out.
Anything below that would most likely be considered a flop and could curb talk of an earlier-than-anticipated Fed rate hike.
Under this scenario risk-sensitive currencies such as the Australian Dollar, New Zealand Dollar and Canadian Dollar would be expected to flourish and Sterling could easily rally back above key psychological resistance at 1.70.
However, it is entirely possible – taking into account recent manufacturing, service sector, labour market and inflation data – that the second quarter growth print could come in significantly higher.
If US gross domestic product prints at 3.5% or above then it could drive Fed rate hike speculation higher, which would likely perturb speculative investors from taking out large positions in risk-sensitive currencies.
The ‘Aussie’, the ‘Kiwi’ and the ‘Loonie’ could decline significantly against the Pound and the US Dollar, whilst the Sterling to US Dollar exchange rate (GBP/USD) could soften towards 1.69.
Later on in the evening the Federal Reserve is set to announce its asset purchasing target.
With reference to recent speeches from Chairwoman Janet Yellen it is widely anticipated that the central bank will cut its quantitative easing scheme by -$10 billion, leaving the monthly target at $25 billion.
This is unlikely to have a significant impact on the currency market.
However, if the Fed decides against tapering QE3 then the ‘Greenback’ could weaken across the board and if the Fed opts to taper by more than -$10 billion then the US Dollar could soar.
Last night the European Union announced a new set of sanctions against Russia related to its involvement in the Crimean crisis.
Key components of the Russian economy such as oil, defence, dual-use goods and sensitive technologies were targeted in attempt to persuade President Vladimir Putin to do more to quell the conflict.
As of yet the knock-on effect of the latest sanctions, and indeed any further measures, are still unknown. However, it is quite possible that the conflict could have a sizeable impact on both European and global economic growth this year.
In reaction to past sanctions perceived riskier currencies such as AUD, NZD and CAD softened noticeably against the Pound. However, on this occasion Sterling remained relatively flat against all three.