GBP/USD Bounces Back Up On Investor Anxiety Ahead of FOMC Minutes
The GBP/USD exchange rate bounced back from its steep decline at around midday. After hitting a low of 1.4010, investors began to readjust their positions on the US Dollar as they anticipate this evening’s Fed-related events.
Minutes from March’s Federal Open Market Committee (FOMC) meeting are due to be released this evening. Fed policymakers including President Mester and Fed St. Louis President James Bullard are also expected to be speaking.
As foreign exchange market reactions to March’s FOMC meeting were less than fond, analysts and investors are likely to scour the minutes for signs of hawkishness – or further dovishness. The Pound may continue its current rebound if the Fed’s dovish tone continues.
The Pound Sterling to US Dollar (GBP/USD) exchange rate has been trending lower since the #PanamaPapers leak hit headlines earlier this week and investors sought out the ‘safe-haven’ US Dollar amid political uncertainty.
Earlier…
Sterling (GBP) Slumps After Disappointing Q1 Growth
A brief GBP/USD hike on Monday was unable to continue as global and domestic ecopolitical concerns refused to let a volatile Pound up for air.
GBP/USD dropped over -170 pips since Tuesday’s session and seems to be continuing its downtrend throughout the day. The pairing is down almost -1.0% already on this morning’s levels of 1.4156 and currently trends in the region of 1.4020.
On top of ongoing issues regarding the UK’s steel industry, Britain’s latest Markit PMI releases, despite printing above forecasts, have disappointed investors and hurt the Pound.
The services sector PMI printed at an impressive 53.7, above predictions of 53.5 and up a point from February’s 52.7. Unfortunately, the collected results for composite PMI indicated that the first quarter of 2016 had seen the slowest quarter for UK growth since January 2013.
Confidence in the UK economy, and the Pound, ahead of June’s EU referendum is waning. Concerns regularly swell up again with the Bank of England (BoE) reminding Britain that a ‘Brexit’ would be the single biggest risk to the UK’s economic stability.
Positive Data and #PanamaPapers Scandal Sees Investors Favouring US Dollar (USD)
Despite reeling on last week’s comments from Federal Reverse Chairwoman Janet Yellen, the US Dollar has seen increased favour this week after events in the global ecopolitical situation improved favour for the ‘safe-haven’ ‘Greenback’.
Tuesday afternoon saw the release of highly anticipated Services Composite ISM data. Printing above forecasts of 54.1, the 54.5 score impressed investors further whilst sentiment towards the US Dollar improved.
Risk-off sentiment has been felt across the board since the ‘Panama Papers’ leak earlier this week as investors settled on safer currencies amid fears of political instability.
The leak mentions various members of the world’s elite, detailing how they have supposedly used ‘tax havens’ to hide large amounts of wealth.
While the leak initially favoured Britain and the Pound due to HMRC comments that tax would be pursued and returned to the UK economy, the scandal has since enveloped the family of UK Prime Minister David Cameron, leading to further favour of the ‘Greenback’ over the struggling Pound.
Despite this, worsening of the United States’ considerably large deficit has weighed on ‘Buck’ strength. While the -$45.7b figure was forecast to worsen to -$46.2b, the actual result was a much worse -$47.06b.
Overall sentiment towards the US Dollar has improved however, as positive growth data from China indicates that the global economy is improving. The global economy was recently cited as the primary reason that US interest rate hikes would be slower and fewer than investors wanted.
Pound Sterling to US Dollar Exchange Rate Forecast: Tomorrow’s Federal Reserve Statements to Move GBP/USD
Optimism towards the Pound continues to be hurt by Britain’s political debates, ‘Brexit’ worries, threat of losing the UK steel industry and lack of healthy data.
As a result, the GBP/USD pair is more likely to see movement inspired by sentiment towards the US Dollar, evidenced by the rapid risk-on, risk-off sentiment changes over the last month.
Thursday’s session sees the release of new US jobless claims and consumer credit data. While both prints are forecast to show marked improvements, better-than-expected data is likely to be eclipsed by tomorrow night’s talks from Fed Chairwoman Janet Yellen.
Yellen had previously reasserted a dovish attitude towards interest rate hikes, the primary cause for recent risk-on sentiment in the forex market.
Despite the global impact of the ‘Panama Papers’ leak, focus from US investors may turn towards Yellen once again, especially if she continues to put forward a dovish tone. However, concerns towards future ‘Panama Papers’ findings may allow the US Dollar to mitigate losses.
The Pound Sterling to US Dollar (GBP/USD) exchange rate currently trends around 1.4020 while the US Dollar to Pound Sterling (USD/GBP) exchange rate trends in the region of 0.7132.
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