The Pound to US Dollar exchange rate (GBP/USD) rallied by around 1.5 cents to 1.6050 yesterday as hawkish comments from Bank of England Governor Mark Carney clashed with dovish comments from soon-to-be Federal Reserve Chair Janet Yellen.
Ahead of her Confirmation Hearing, which takes place later this afternoon, Yellen released a statement yesterday evening outlining her stance on the American economy and the Federal Reserve’s monetary policy.
Yellen said that the economy is still performing “far short” of its potential and went on to suggest that she is not in favour of a swift removal of stimulus:
“We have made good progress but we have farther to go to regain the ground lost in the crisis and the recession”.
“The Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases”.
The incoming Fed Chair also mentioned that the labour market is not yet strong enough to merit a removal of stimulus.
Janet Yellen has always been considered an extremely dovish policymaker and her latest comments do nothing to challenge that reputation. The US Dollar declined by around half a cent when the statement hit the newswires and further weakness could ensue if Yellen is seen to be against a December tapering of asset purchases in this afternoon’s Confirmation Hearing.
UK Unemployment down
The Pound to US Dollar exchange rate (GBP/USD) started out yesterday at around 1.5880, but Sterling swiftly soared during the morning as data showed that the UK Unemployment Rate took a surprising tumble from 7.7% to 7.6% in the three months leading up to September. It was reported that the 177,000 new jobs were created during that time, and that Jobless Claims declined by a further -41,700 in October.
The Sterling-positive news continued during the Bank of England’s Quarterly Inflation report, which featured an upward revision to the Bank’s 2014 GDP forecasts from 2.5% to 2.8%, and a far more optimistic outlook for Unemployment. Previously the BoE had predicted that Unemployment would not hit the 7.0% threshold, which is likely to lead to a hiking of interest rates, until late 2016. However, yesterday’s report suggests that the labour market could reach the 7.0% target a year earlier, in the third quarter of 2015.
Investors reacted strongly to the news, as the prospect of a rate hike in the next two years became slightly more realistic.
If UK Retail Sales print strongly at 3.3%, as expected, and Janet Yellen strikes a dovish tone in her questions and answers session with the American Senate, as predicted, then it is entirely possible that GBP/USD will register some further gains later on today. Strong technical resistance for the pair exists at 1.6160.
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