GBP/USD Exchange Rate Hits Weekly High, Forecast to Strengthen on Fed Minutes
An unchanged interest rate from Bank of England policymakers has had little effect on Sterling, not least because the decision was expected and priced in. The same can’t be said for the Federal Reserve minutes from the most recent policy meeting, which suggested patience regarding monetary policy normalisation. The US Dollar has tumbled across the board as a result.
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The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6180.
Sterling has struggled of late after several UK officials made dovish statements regarding the British economic outlook.
Bank of England Deputy Governor Ben Broadbent initiated concerns after he suggested that a rate hike shouldn’t be expected until the issues surrounding inflation are resolved. Kristin Forbes, the newest policymaker at the BoE, echoed Broadbent’s views in her maiden speech in which she suggested that inflationary pressure is the primary barrier for monetary policy normalisation.
Business Secretary Vince Cable aided an extension of Sterling losses after he linked inflationary pressure to Pound overvaluation.
With traders making large investments based on bets that the Federal Reserve will look to normalise monetary policy sooner-than-expected, the US Dollar has held a chart-topping position for a sustained period regardless of the positivity (or lack thereof) of economic data.
The Pound Sterling to US Dollar exchange rate has fallen to a low today of 1.5945.
On Thursday the Pound declined a little against high-yielding currencies. This is due to a combination of anxiety regarding overvaluation and less-than-ideal domestic data.
The RICS House Price Balance declined beyond the median market forecast of a drop from 39.0% to 36.0%, with the actual result falling to 30%.
After Bank of England officials finished their 2-day meeting they elected to keep monetary policy unchanged. This was expected and already priced in by traders so the decision has had very little effect on the Pound. It is likely that BoE policymakers will want to address inflation and assess the impact of slowing global growth before hiking rates.
Thursday has seen the US Dollar slump against all of its most traded currency competitors. This is attributed to the dovish nature of minutes from the most recent Fed policy meeting.
‘Some participants expressed concern that the persistent shortfall of economic growth and inflation in the Euro area could lead to a further appreciation of the Dollar and have adverse effects on the U.S. external sector,’ according to the minutes. ‘Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk.’
Forecast for the Pound to US Dollar Exchange Rate
With nothing in terms of highly weighted American economic data on Friday the US Dollar is likely to continue trending lower. Given that the Federal Reserve wants to devalue the Dollar it is unlikely that the many speeches from Fed officials on Friday will have hawkish overtones.
British Trade Balance data will be of interest to those invested in the Pound. The speeches from Bank of England officials may also spark Sterling volatility.