The Pound to US Dollar exchange rate (GBP/USD) rallied by over a third of a cent yesterday evening in reaction to the latest minutes report from the Federal Reserve.
Although the minutes from the FOMC meeting on June 17-18 didn’t really cover any startling new ground, the fact that the central bank didn’t give any new clues as to when interest rates will be hiked was seen as a bearish signal for the ‘Greenback’.
GBP to USD rose from 1.7120 to 1.7160 following the release.
The report showed that policymakers at the central bank expect the QE3 asset purchasing scheme to end in October with a final taper of -$15 billion. However, this much was already widely priced into the market and Fed Chairwoman Janet Yellen has made it abundantly clear that she does not intend to start raising the benchmark rate just because quantitative easing is coming to an end.
It was also announced that Fed policymakers see economic growth picking up considerably in the second quarter, as America rebounds from the abysmal -2.9% contraction registered in Q1. This much was also widely expected beforehand, with most analysts predicting Q2 GDP growth of 3.0%-3.5%.
The minutes also featured a slight upgrade to the US growth outlook over the next two years. However, any optimism that may have been derived from this nugget of hawkish rhetoric was erased by talk of supervisory measures to prevent excessive risk taking. It was also mentioned that some officials are concerned that markets are becoming complacent with regards to financial risks.
All in all the FOMC report offered very little fresh information and by this virtue it softened demand for the US Dollar. This is because some traders were hoping for a more hawkish response from the central bank.
The Pound is currently trading very close to the 5.5-year high of 1.7180 that it struck last Friday and it is entirely possible that Sterling could rise towards the next psychological barrier at 1.7200 in the near future. The fact that GBP to USD remained above 1.7150 during the New York session bodes well for ‘Cable’.
Later this morning British trade data is predicted to show a tightening of the UK trade deficit from £-9.6 billion to £-8.7 billion, which has the potential to boost the appeal of the Pound.
At midday the Bank of England is set to announce its plans for monetary policy in July. There once was a time, not all that long ago, when BoE policy decisions were watched with eagle eyes for dovish or hawkish moves. However, it is highly likely that this afternoon’s announcement will go by relatively quietly, with little-to-no impact on the Sterling exchange rate. The UK central bank is almost certain to maintain its benchmark interest rate of 0.50% and its asset purchasing target of £375 billion.
UPDATED: 08:50 GMT 11 June 2014
GBP to USD Exchange Rate Down before UK Data
Although the Pound to US Dollar (GBP/USD) exchange rate was able to strengthen in an immediate response to the slightly dovish Federal Open Market Committee meeting minutes, the pairing went on to shed gains during the European session.
Less-than-impressive UK trade figures pushed the Pound lower against almost all of its currency counterparts. While concerning news from Portugal helped Sterling recover ground against the Euro, upbeat US Initial Jobless Claims figures kept the GBP to USD exchange rate lower.
If today’s UK Construction Output report prints positively, the Pound to US Dollar just might enter the weekend in a stronger position.
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