GBP/USD Exchange Rate firms on expectations of No victory
The Pound to US Dollar (GBP/USD) exchange rate is presently trending at 1.6249. The Pound has reached session highs of 1.6249 whilst also dipping to lows of 1.6160.
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Sterling has seen losses against the bullish US Dollar of late, as the pressure on the Pound in the run up to the Scottish referendum continues to weigh down trading. The Scottish referendum—due to take place on Thursday—will see Scottish citizens vote for or against independence, which could result in a breakaway from the UK.
Forex expert Andreas Utermann commented: ‘In the event of a “Yes” vote, Sterling will probably weaken quite a bit, but then nothing much will happen until the terms of any divorce or new settlement, devolution max, are finalised. Financial markets price risk and whether it’s a “Yes” or “No” vote, the risks for the next two to three years of investing in the UK assets will have gone up.’
Moreover, both the Pound and US Dollar could face fluctuations from the actions of their respective central banks this week. The US Federal Reserve is due to announce their interest rate decision on Wednesday which is hoped will provide guidance for the timeframe of rate hikes. Conversely the Pound will see influence from Wednesday’s Bank of England (BoE) Meeting Minutes. The minutes are expected reveal the amount of members on the Monetary Policy Committee (MPC) that voted for and against rate hikes in the UK.
The topic of rate hikes is no stranger to either the US or the UK, with both nations in close contention to be the first to raise borrowing costs out of the Group of Seven since the Great Recession. The Federal Reserve has previously commented that rates would remain low for a ‘considerable time’ after quantitative easing finishes.
Strategist Shaun Osborne commented: ‘There’s an awful lot of risk in the market, and unless you have a high conviction view, you’re probably not going to be aggressively involved. The Fed is probably going to sound a little bit less dovish, and the “considerable time” reference may get dropped.’
In the rest of the week, Wednesday will see the release of UK Average Weekly Earnings, Claimant Count, Unemployment Rate, Jobless Claims, and Weekly Earnings following the Bank of England Meeting Minutes. In addition the US Dollar may feel fluctuations from the US Consumer Price Index, Pace of MBS Purchases, Pace of Treasury Purchases, Pace of Quantitative Easing, the Federal Open Market Committee Rate Decision, and the statement from Fed Chairwoman Janet Yellen.
The Pound made gains against the US Dollar on Wednesday after economic data showed that the unemployment rate in the UK fell more than forecast and average earnings increased rose more than expected in July. The number of UK citizens claiming unemployment benefit also fell sharply. Despite the strong data, the Bank of England minutes showed that the same two policy makers as before were calling for a rise in interest rates. Both Martin Weale and Ian McCafferty wanted to raise rates to 0.75%, but were outvoted.
With no further signs of dissension amongst the MPC some economist may see it as a negative. The markets will now turn their attention to the evenings US Federal Reserve Policy Meeting.
The Pound to US Dollar exchange rate firmed on Thursday morning as opinion polls showed a slight lead for the pro UK no campaign in the Scottish referendum. The Scots have begun to vote in their droves as the fate of the 300-year old union hangs in the balance. The US Dollar meanwhile was softened by the Federal Reserve’s announcement that interest rates will remain close to zero for a sustained period, disappointing investors who had hoped for hawkish comments.