GBP to USD Fluctuates Amid Rate Hike Speculation
While the odds of the Bank of England increasing interest rates before the end of this year have bolstered the Pound over the last few weeks, the prospect of the Federal Reserve following suit has seen the Pound to US Dollar (GBP/USD) exchange rate decline.
Sterling eased lower against the ‘Greenback’ during the European session, shedding 0.2% amid a decided lack of influential economic reports for the UK or US.
The Pound also fluctuated against the Euro as investor bets that the British currency’s rally had been excessive took a toll.
FOMC Minutes Due
Ever since Bank of England Governor Mark Carney asserted that interest rates could be hiked much sooner than analysts expect, Sterling has been trending higher against its peers.
Although the BoE went on to issue more mixed commentary in the weeks that followed, the GBP/EUR exchange rate has recently been trading in the region of a 21-month high while the GBP to USD exchange rate was trending above an over five-year high.
Today however the Pound has shed over 0.2% against the Euro, US Dollar and Australian Dollar and has fallen by over 0.3% against the Canadian Dollar and New Zealand Dollar.
While US news has been limited today, the Federal Open Market Committee will publish minutes from its latest meeting this week and the data could have a notable impact on the Pound to US Dollar exchange rate.
In the view of currency strategist Joseph Capurso; ‘The minutes may reveal discussion of an exit strategy to eventually raise the funds rate and shrink the balance sheet. Its release may modestly support the USD and US swap rates.’
BoE Decision Ahead
Other factors which may influence the direction taken by the Pound to US Dollar (GBP/USD) exchange rate over the next five days include tomorrow’s UK Manufacturing/Industrial Production figures, the UK’s GDP estimate for June, the release of FOMC minutes, UK trade balance figures, US Initial Jobless Claims, UK Construction Output figures and the US Monthly Budget Statement. The Bank of England’s rate decision (due out on Thursday) is of particular importance.
Last week chief BoE economist Andy Haldane dampened rate-hike bets by asserting that increasing borrowing costs should be the central bank’s final means of protecting the UK economy from a housing bubble.
He asserted; ‘As recently as last week, we at the bank took some action overtly with an eye to stop a market – in this case housing – becoming overheated, not today but in the future. Equally important is that we’ve said at the bank that monetary policy can on occasions have a role to play in insuring against these financial stability risks – not as a first line of defence but sometimes as a last line of defence.’
If other BoE policy makers reiterate this slightly more dovish stance over the next couple of weeks it could drive Sterling lower against its peers and the Pound to US Dollar (GBP/USD) exchange rate could lose ground.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.5841,
US Dollar,,Canadian Dollar,1.0642, 
US Dollar,,Euro,0.7356,
US Dollar,,Australian Dollar,1.0679,
US Dollar,,New Zealand Dollar,1.1439,
Canadian Dollar,,US Dollar ,0.9405,
Pound Sterling,,US Dollar,1.7117,
Euro,,US Dollar,1.3595,
Australian Dollar,,US Dollar,0.9366,
New Zealand Dollar,,US Dollar,0.8748,
[/table]
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