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GBP/USD Exchange Rate Jumps Again as Federal Reserve Happy with Loose Monetary Policy

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GBP/USD Exchange Rate Climbs despite Optimistic Federal Reserve 

Federal Reserve optimism didn’t translate to US Dollar (USD) strength, as the Pound Sterling to US Dollar (GBP/USD) exchange rate is climbing again today. The Pound (GBP) remains broadly appealing due to Britain’s coronavirus recovery hopes. 

GBP/USD may be in for another week of gains. Last week saw GBP/USD climb from the level of 1.3735 to 1.3853, a gain of over a cent. 

This week’s movement hasn’t been quite as bullish, but GBP/USD did touch on a 33 month best of 1.3950 on Tuesday. At the time of writing on Thursday, GBP/USD is attempting another advance and is trending in the region of 1.3920. 

There is potential for GBP/USD to surge even higher by the end of the week as well. This depends on the results of key UK ecostats due for publication tomorrow. 

Pound (GBP) Exchange Rates Continue to Capitalise on Coronavirus Recovery Hopes 

The Pound continues to be one of the most appealing major currencies in forex markets this week. 

Following stronger than expected UK inflation rate data yesterday, investors are even more optimistic about Britain’s economic resilience amid the coronavirus pandemic. 

The primary cause of the Pound recent gains is broad speculation that Britain will be one of the first major economies to recover from the coronavirus pandemic. This is because the UK continues to ramp up its vaccine rollout ahead of other nations. 

According to Neil Jones, Head of FX Sales at Mizuho: 

‘The Pound is benefiting from its vaccine currency status. Expectations for a more rapid economic recovery are kicking into play’ 

US Dollar (USD) Exchange Rates Drop Again after Federal Reserve’s Meeting Minutes 

Last night saw the publication of the latest Federal Reserve meeting minutes report. The minutes contained no notable surprises, and the bank indicated that it was comfortable with current monetary policy. 

The bank’s optimism over current ultra-loose monetary policy, as well as the strategy of letting US economic activity run hot, has left markets doubtful that the bank will tighten monetary policy any time soon. 

According to Yohay Elam, Analyst at FXStreet, the Fed isn’t surprised by rises in US inflation: 

‘The Federal Reserve’s sanguine approach to inflation may take some of the air out of the rally. The central bank sees any rise in prices as temporary and even blessed – contrary to current market concerns. If investors become fully convinced that rate hikes and tapering of bond-buys remain distant, that could also weigh on the currency.’ 

Pound to US Dollar (GBP/USD) Exchange Rate Could Climb Higher if UK Stats Impress 

US jobless claims data will be published today. However, even if it beats forecasts, expectations of lasting dovishness from the Federal Reserve are likely to limit the US Dollar’s chances of pushing GBP/USD lower. 

In fact, GBP/USD has the potential to rise even higher by the end of the week if tomorrow’s UK datasets impress. UK retail sales from January and PMI projections for February are due tomorrow. 

If the data beats expectations it could boost hopes for resilience to the coronavirus pandemic in Britain’s current economic performance. This would make markets even more optimistic about Britain’s potential for recovery. 

US PMI projections from Markit and home sales stats are also due tomorrow. 

However, unless US data surprises investors considerably, the US Dollar may struggle to push GBP/USD lower again without a rise in demand for safe haven currencies.