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GBP/USD Exchange Rate Drifts Higher, Fed Rate Decision in Spotlight

Federal Reserve

GBP/USD Climbs as Markets Remain Cautious Ahead of Fed Meeting

The Pound US Dollar (GBP/USD) exchange rate is pushing higher this morning as investors shy away from USD ahead of the Fed’s rate decision later today.

At the time of writing the GBP/USD exchange rate is up by around 0.2% this morning, with the pairing trading close to the week’s starting levels again.

US Dollar (USD) Subdued Ahead of Fed Rate Decision

The US Dollar remains muted this morning as markets await the conclusion of the Federal Reserve’s latest policy meeting later this afternoon.

While the Fed is not expected to have altered its monetary policy this month, markets will be watching closely for whether there is any change in language from the bank.

Some Fed policy makers have recently suggested that the bank may have been a little too hasty in dismissing the impact of the Republican tax breaks and may push for a more hawkish message on the back of this.

Conversely the persistently low inflation rate in the US may continue to concern policymakers and could cause the Fed to strike a more cautious tone today, something which would likely cause the US Dollar to tumble.

Sterling (GBP) Ticks Higher as Consumer Sentiment Rises

At the same time the Pound is strengthening this morning on the back of the UK’s latest consumer confidence figures.

According to Gfk household sentiment in the UK unexpectedly rose this month, with the confidence index climbing from a four-year low of -13 to -9.

The jump in sentiment should be welcomed by retailers as it signals UK consumers’ are feeling a little more confident in their finances this month and make choose to loosen the purse strings a little.

However analysts warned that, with households still facing significant financial pressure the uptick in confidence could prove to be a one off.

Joe Staton, head of market dynamics at GfK, said;

‘In the absence of good news about rising wages and declining inflationary pressures, this off-trend number could be a temporary blip rather than a strong sign of recovery,’

GBP/USD Forecast: US Payroll Figures to Bolster US Dollar?

While the Federal Reserve is likely to dominate movement in the GBP/USD exchange rate later today, looking a little further ahead the US Dollar is likely to be moved by the latest US employment data.

The US will publish its latest Non-farm Payroll figures on Friday, with the US Dollar likely to climb if forecasts of a rebound in January prove correct.

Meanwhile the Pound may strengthen on Thursday with the release of the UK’s latest manufacturing PMI, with an expected uptick in activity in the sector this morning likely to please Sterling investors.