Decreased Chance of September Fed Hike Fails to Boost GBP/USD
Reaction to the Federal Open Market Committee (FOMC) meeting minutes was not quite as bullish as had been expected, with bets on a September interest hike receding somewhat due to a dovish sentiment towards the current level of inflation. Although the FOMC appeared to remain confident that the time for a rate lift-off is approaching it will likely be conditional on evidence of a further improvement in inflation, which was not provided yesterday with the US Consumer Price Index for July only rising slightly at 0.2%. Even so, the GBP/USD exchange rate is currently down at 1.5666.
Earlier…
With investor optimism fading after yesterday’s surprise boost on UK inflation data the GBP/USD exchange rate stands to fall if July’s Federal Open Market Committee (FOMC) minutes prove hawkish and prompt a general return to the safe-haven currency.
UK CPI Boosted GBP/USD Exchange Rate to Monthly-High Yesterday
Results for the US have been somewhat mixed so far this week, with yesterday’s weak housing data failing to support the gains brought about by Monday’s Net Long-term TIC Flows and NAHB Housing Market Index. The state of the world’s most influential economy appeared to be in question, not least as the Chinese stock markets clocked their worst fall in three weeks to once again raise fears of renewed Yuan (CNY) devaluation and the potential of a currency war to undermine the value of the US Dollar (USD).
The dominant influence on the GBP/USD pairing, however, was undoubtedly the surprise increase demonstrated by the UK Consumer Price Index. Where forecasts had anticipated that the domestic inflation rate would remain at 0% the figure actually hit 0.1%. Spurring optimism in an improving UK economy and fuelling speculation over the potential time-scale of a Bank of England (BoE) interest rate hike, this sent the GBP/USD exchange rate rocketing up to strike a fresh monthly peak of 1.5708.
US Dollar Holding Steady in Anticipation of US CPI and FOMC Minutes
Some of the Pound (GBP) positivity appears to have started tailing off today as the GBP/USD pairing fell back to 1.5665 in the earlier hours. Commentary from economists suggesting that the inflation rate will return to a downtrend next month, with this figure having potentially been an anomaly rather than a sign of improved domestic conditions, appears to have undermined trader confidence.
Ahead of this afternoon’s US Consumer Price Index and the Federal Open Market Committee (FOMC) meeting minutes for July movement for the ‘Greenback’ has been relatively muted. After last night saw a number of other Asian stock markets take their cue from China to fall to two-year lows Wall Street also experienced a retreat in share prices. Nevertheless, the expectation for positive data today has prevented the ‘Buck’ declining too far on this worry.
GBP/USD Exchange Rate Forecast: Pound Prospects Dependent on UK Retail Sales
Should today’s FOMC minutes prove hawkish the GBP/USD pairing is likely to slump on the resultant buoyance of the ‘Buck’. Plenty of further opportunities for a rally await the US Dollar in the coming days, with a raft of figures still scheduled for release, including employment data out tomorrow and the country’s Manufacturing PMI due on Friday.
Sterling may rebound, however, on a strong result for Thursday’s UK Retail Sales. Further evidence for an improving domestic economy would undoubtedly build on the positive Consumer Price Index to trigger another round of rate rise speculation. The nation’s upcoming Public Sector Net Borrowing figure could cut any potential resurgence short again though, given that a deficit is forecast and may even prove to be worse than expectations.
Current GBP, USD Exchange Rates
At time of writing the Pound Sterling to US Dollar (GBP/USD) exchange rate is trending narrowly at 1.5662, while the US Dollar to Pound Sterling (USD/GBP) pairing remains relatively static around 0.6385.
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