The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within a limited range on Tuesday morning.
After the Conservative victory in the British general election, the Pound advanced across the board. The British asset softened a little on Tuesday, however, amid speculation that the new Prime Minister will bring the European Union referendum forward to 2016 to please his right-wing Tory back-benchers.
The US Dollar, meanwhile, softened on Tuesday after having advanced amid speculation that the Federal Reserve would move away from a data-centric monetary policy. This is mainly the result of Monday’s disappointing domestic data.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.5571.
Yesterday…
The Pound Sterling to US Dollar (GBP/USD) exchange rate rallied by around 0.76% on Monday afternoon.
The Pound continues to trend higher across the board as the Tory victory in the general election is received positively by investors. Even the prospect of a referendum on Britain’s membership in the European Union is not enough to override gains. The Pound also held gains after the Bank of England (BoE) held the cash rate at 0.5%, in line with analysts’ expectations.
The US Dollar, meanwhile, strengthened versus the majority of its most traded currency rivals despite relatively disappointing domestic data results. The appreciation can be linked to speculation that the Federal Reserve will move away from a data-centric monetary policy outlook to one which tracks economic evolution and the market reaction to domestic data results.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.5566.
Pound Sterling (GBP) Exchange Rate Forecast to Trend Higher Across the Board as Conservative Victory Backed by Banks and Businesses
Despite the fact that the Tories offered a referendum on Britain’s membership in the EU as part of their electoral campaign, their victory was met with a significant Sterling surge. This is because historically the Conservative party has had more success on economic progress compared with the Labour party.
Additional Sterling gains are the result of the BoE keeping the lending rate at a record-low 0.5%, a move expected by the vast majority of economists. The central bank’s Inflation Report, due for publication on Wednesday, will be a much more insightful gauge as to how the institution will approach monetary policy under a Conservative government.
The Pound Sterling to US Dollar (GBP/USD) exchange rate dropped to a low of 1.5392 today.
US Dollar (USD) Exchange Rate Forecast to Edge Higher versus its Major Peers amid Speculation of an End to Data-Centric Monetary Policy
US domestic data printed relatively disappointingly on Monday but the result had minimal impact on demand for the ‘Greenback’ (USD). The Labour Market Conditions Index Change came in at -1.9 in April, a fractional drop from the negatively revised previous figure of -1.8.
Despite the rocky data, the US Dollar advanced versus the majority of its most traded currency rivals on Monday. This can be attributed to speculation that the Federal Open Market Committee (FOMC) will end its data-centric stance on monetary policy and revert to a policy which tracks economic evolution.
‘They’re going to be data dependent to some degree, but they’re also going to be reacting to how the markets react to the data,’ said Omair Sharif, a rates sales strategist at Societe Generale in New York. ‘They’re just too nervous about creating unnecessary volatility.’
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Hold Gains as Tory Victory Stokes Demand for the British Asset
Given the extent of the appreciation, and with an absence of domestic data to curb the trend, the Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to hold gains for the remainder of Monday’s European session.
Tuesday could see heightened GBP/USD volatility with several influential economic data publications pertaining to both the UK and the US.
The Pound Sterling to US Dollar (GBP/USD) exchange rate climbed to a high of 1.5579 today.
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