The Pound Sterling to US Dollar (GBP/USD) exchange rate weakened on Tuesday as the ‘Greenback’ was boosting by diverging outlooks on global interest rates.
The Pound Sterling to US Dollar (GBP/USD) exchange rate softened to a session low of 1.5052
The US Dollar made strong gains against many of its most traded peers and hit new multi year highs in the Asian session due to the sharply diverging contrasts for global interest rates and as it received support from increased demand for safer assets.
Boosting demand for the ‘Greenback’ is speculation that the US Federal Reserve will begin to hike interest rates by the summer. In comparison, the central banks of Europe, Japan, Canada and Australia have all eased their monetary policy and cut interest rates. The ECB has launched a massive quantitative easing programme, whilst the Fed ended its own programme. The Bank of Japan meanwhile expanded its own stimulus programme last October on concerns over falling oil prices and a weaker outlook for inflation.
Demand for the safe haven US Dollar was increased as European finance ministers told Greece to stop wasting time and hold serious talks on reforming its economy. Expectations for a Grexit have risen as the Euro group rejected the reform plans issued by Athens.
ISIS Threat Increases Safe Haven Demand
Also increasing risk aversion are concerns over the heavy fighting in the Middle East, Libya and Nigeria.
Iraqi forces are expected to take control of the besieged city of Tikrit within days after they launched a massive assault against Islamic State positions. Over the past few days, forces have advanced to just one mile from the city centre.
In Libya, Islamic State militants attacked an oilfield, beheaded eight security guards and abducted nine foreign workers. The step up in attacks has forced the closure of eleven oil fields. The head of the Libyan military warned that ISIS goal is to take control of the nation’s petroleum industry.
In Nigeria, the terrorist group Boko Harem pledged allegiance to ISIS and further violence occurred in the north of the country as an allied force of African nations recaptured the town of Damasak after launching air raids and a ground assault, which cost the lives of a number of Chadian soldiers.
As the session, progresses the US Dollar could make further gains if the latest JOLTs Job Openings report comes in strongly. A positive report will likely increase expectations that the Federal Reserve will hike interest rates in the summer.
