Although the US Dollar broadly softened on Monday amid conflicting US interest rate-hike speculation, the British Pound to ‘Greenback’ exchange rate continued trending in a weaker position.
The assertion that the Pound is currently overvalued and hindering the UK’s economic performance, in conjunction with a lack of market-moving UK reports, kept Sterling trading lower throughout the European and North American sessions.
At the beginning of the week Business Secretary Vince Cable stated that the Pound is overvalued by as much as 15% and the asset dropped accordingly.
In the view of The Business Insider; ‘Cable’s comments are likely earn him a place among the long line of politicians and policymakers who have been accused of attempting to “talk down the pound” over recent years. Fellow members of that club include former Labour Chancellor Alistair Darling, current Chancellor George Osborne and former Bank of England Governor Sir Mervyn King. The theory behind the comments is fairly simple. A fall in the value of the pound against its trading partners should increase the cost of imports for the UK and decrease the cost of British goods abroad. This should lead to an improvement in the country’s balance of trade as it earns more from goods sold than it pays out for goods coming in.’
However, the US Dollar did slide notably against several of its rivals, including the Japanese Yen and South African Rand.
Last week the US currency fluctuated in response to concerns that the asset’s rally had been excessive, and although a strong US Non-Farm Payrolls print helped it stage a recovery, the US Dollar has since softened.
According to foreign exchange strategist Matthew Derr; ‘In our view, it’s just a minor pull back. We saw the move on Friday really kick in after payrolls and it seems like the following few days are just consolidation of that.’
British Pound to US Dollar Exchange Rate Forecast
Today the direction taken by the British Pound to US Dollar (GBP/USD) exchange rate will largely be driven by UK data, including the nation’s Industrial Production/Manufacturing Production figures and the National Institute of Economic and Social Research GDP estimate for September.
Recent reports have indicated that the pace of UK growth might be slowing and if this GDP report confirms that the Pound could slide lower against the US Dollar before the end of trading.
Of course tomorrow investors will be focusing on the Federal Open Market Committee’s meeting minutes. If the central bank adopts a hawkish tone with regards to the timeline for interest rate increases the ‘Greenback’ could rally.
Former Federal Reserve Chairman Ben Bernanke is also scheduled to speak in New York. It will be interesting to see what the old central bank chief makes of the current trajectory of US economic policy.
