The Pound Sterling to US Dollar (GBP/USD) exchange rate extended gains on Wednesday as positive UK news boosted the Pound and US data put the ‘Greenback’ under pressure.
The GBP/USD pairing rallied early into the European session amid concerns that the Federal Reserve won’t adapt its interest rate rhetoric when it delivers its policy announcement later today.
Pound strength was also derived from the UK’s upbeat employment figures and the Bank of England’s meeting minutes.
As the Monetary Policy Committee was divided on the subject of interest rates for a second month, and as the rate of UK unemployment dropped to a six-month low, the odds of a sooner-rather-than-later interest rate increase climbed once more. The Pound advanced against most of its peers as a result.
The Pound Sterling to US Dollar (GBP/USD) exchange rate hit a high of 1.6351.
The same two BoE policymakers who voted in favour of interest rate hikes in August held their ground in September, and the minutes stated; ‘Since monetary policy could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them. Moreover, to the extent that recent robust GDP growth rates had been underpinned by stimulatory monetary policy, in addition to reduced uncertainty and an easing in credit conditions, then the erosion of spare capacity would be likely to remain rapid while policy remained expansionary. In the judgement of these members, even after a rise of 25 basis points in Bank Rate, monetary policy would remain extremely supportive, and an early rise would facilitate the Committee’s aspiration that rises in Bank Rate should only be gradual’.
The Pound consolidated and extended declines as industry experts began to bet that the Scottish referendum would result in Scotland opting to remain part of the United Kingdom and the US published surprising inflation data.
The US Consumer Price Index was shown to have declined by -0.2% in August, month-on-month, rather than stagnating as investors expected. On the year, the consumer price index came in at 1.7%, down from 1.9% the previous month and below the Federal Reserve’s target levels.
This was the first drop in consumer prices for over 12 months.
The US Dollar fell against the majority of its currency counterparts following the report’s release.
GBP/USD Exchange Rate Forecast
If the Federal Reserve fails to adopt a hawkish stance in today’s interest rate announcement, the US Dollar could continue sliding against peers like the Pound and Euro.
Of course, movement in the GBP/USD pairing will also be caused by UK developments as the week continues, with the Scottish referendum being of particular importance.
Investors will also be taking an interest in the UK’s retail sales figures for August. Retail sales are expected to have climbed by 0.3% on the month in August and be up 4.8% on the year.
A better-than-forecast result would be Pound beneficial.
Similarly, if US initial jobless claims come in above forecast levels tomorrow it may give the Pound to US Dollar (GBP/USD) exchange rate a boost.
The Pound to US Dollar exchange rate is currently trending in the region of 1.6334, up 0.4% on the day’s opening levels.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.6119,
US Dollar,,Canadian Dollar,1.0963,
US Dollar,,Euro,0.7717,
US Dollar,,Australian Dollar,1.1040,
US Dollar,,New Zealand Dollar,1.2240,
Canadian Dollar,,US Dollar ,0.9123,
Pound Sterling,,US Dollar,1.6331,
Euro,,US Dollar,1.2959,
Australian Dollar,,US Dollar,0.9059,
New Zealand Dollar,,US Dollar,0.8172,
[/table]
