The Pound plummeted against the US Dollar this afternoon, falling from nearly 1.27 to 1.25 as the Bank of England announced that it had voted to hold interest rates at 0.25% as Governor Mark Carney pointed to the upwardly revised growth prospects as proof that its ultra-loose monetary policy worked. (Updated 14.10 GMT 02.02.17)
The GBP USD exchange rate hit a six-week high this morning following a neutral statement from the Federal Reserve regarding future rate hikes
US Dollar Pressured by Dovish Fed Meeting
The Pound US Dollar (GBP USD) exchange rate climbed yesterday evening following the Fed’s decision to leave US interest rate unchanged.
While investors had not expected the central bank to hike rates this soon after the last rise in December they had been expecting some hint towards a possible rise in March.
The Fed stated that it was upbeat about the state of the US economy but remained cautious due to the uncertainty of Donald Trump’s presidency, especially as the administration is yet to outline its economic policy, leaving observers to make vague assumptions based on his late night twitter posts.
Markets were ultimately disappointed by the Fed’s dovish stance however as it promoted a ‘wait and see’ attitude, with analysts now predicting that the first rate hike of 2017 will not happen until June.
GBP USD Weakened by Construction PMI
Sterling faltered later in the morning however, following the release of a lacklustre UK Construction PMI.
The PMI showed that activity slowed from 54.2 to 52.2 in January as the sector felt the pressure of rising prices and declining orders due to the uncertainty of Brexit. While markets were upbeat about the rise in employment, there were some doubts about the sector’s long term prospects. As Paul Trigg, construction specialist at Euler Hermes, explained;
‘Total UK corporate failures may also increase – our forecast predicts a five per cent rise this year, six per cent in 2018 and 15 per cent in 2019 without a free trade agreement.’
GBP USD Exchange Rate Forecast: BoE Meeting Ahead
The GBP USD exchange rate may see some movement later this afternoon following the Bank of England’s latest policy meeting. While the Bank is not expected to alter the current interest rate economists predict that the BoE will raise its near-term growth forecasts, likely lifting the Pound.
Meanwhile the US Dollar may advance further against Sterling if today’s US Jobless claims report impresses, with a fall in claims likely to improve the chances of future Fed rate hikes.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.26 and the USD GBP exchange rate was trending around 0.79.
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