GBP/USD Exchange Rate Edges Higher as US Markets Brace for Fed Rate Decision
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.2% today, with the pairing currently trading around $1.291.
The US Dollar (USD) has continued to suffer from positive risk sentiment despite the ‘Greenback’ stabilising somewhat ahead of this evening’s Federal Reserve meeting.
Many members of the Fed’s policy board have been vocal about pushing for more fiscal stimulus to improve America’s economic situation. As a result, we could see more pressure on the Fed to act.
Ian Katz, an analyst at Capital Alpha, commented:
‘We don’t think the Fed will capitulate to all of the industry and lawmaker demands, but we expect it will continue to look for ways in the coming weeks to broaden and flexibilise Main Street to get aid to more companies.’
Meanwhile the safe-haven ‘Greenback’ has remained under pressure from hopes for a Covid-19 vaccine. Instead investors have sought out riskier assets as confidence in the global economy’s earlier-than-expected recovery continue to grow.
Kyosuke Suzuki, an analyst at Societe Generale, explains:
‘It was uplifting that Pfizer has made clear a target of vaccines. As risk assets bounced back, the dollar has lost momentum.’
Pound (GBP) Rises as UK Inflation Shows Return of UK Economic Activity
The Pound (GBP) edged higher today following the release of August’s UK Consumer Price Index early this morning. The figure beat forecasts and rose by 0.2%, buoying confidence in the British economy as activity picked up last month.
Neil Birrell, the chief investment officer at Premier Miton, commented on the report:
‘The inflation data in the UK surprised on the upside. The core year-on-year CPI was up 0.9% against expectations of 0.5%. Rising inflation has been much discussed as the inevitable consequence of all the stimulus being injected into the economy. Policy makers won’t be worried about this number, they are more likely to be pleased there is activity in the economy.’
However, UK economic pressures continue to mount after US Democrats warned that a UK-US trade deal could be scuppered if a hard Brexit threatens the Good Friday agreement.
Consequently, Sterling’s gains have remained under check since the passing of the Brexit Internal Market Bill through Parliament on Monday.
Furthermore, any signs of UK-EU tensions rising over the newly amended bill would drag down the GBP/USD exchange rate.
GBP/USD Outlook: Could a Dovish Bank of England Drag Down Sterling Tomorrow?
Pound (GBP) traders are bracing for tomorrow’s interest rate decision from the Bank of England (BoE).
Although the Bank if forecast to hold interest rates at 0.1%, any dovishness from the BoE’s Monetary Policy Committee would prove GBP-negative.
In US economic data, tomorrow will see the release of the latest US Initial Jobless Claims report for September. If American joblessness continues to rise, we could see the ‘Greenback’ sink.
The GBP/USD exchange rate will continue to remain sensitive to Brexit developments. As a result, Sterling could suffer if a no-deal Brexit appears more likely at the end of the year.