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GBP/USD Exchange Rate Gains on the Back of Mixed Messages From the Federal Reserve

Pound US Dollar

The Pound (GBP) to US Dollar (USD) exchange rate has seen an uptrend after yesterday’s Federal Reserve meeting resulted in a vote to postpone a rate hike, allowing Sterling some breathing room as investors  seek to drop the ‘Greenback’ in favour of more risk sensitive currencies.

Pound Gains on the US Dollar (GBP USD) but Still Struggles against the Other Majors

In a sea of negative sentiment towards the Pound the GBP/USD exchange rate gives hope that Sterling could bounce back by the end of the week.

That being said, the market continues to lose confidence in the Pound as ‘Brexit’ worries weigh on investors. The potential for the City of London to lose its treasured passporting rights during a ‘hard Brexit’ is causing considerable concern and putting increasing pressure on the financial sector, with Lloyd’s of London planning to implement contingency plans to ensure access to the Eurozone.

Meanwhile the Bank of England (BoE) has warned of a ‘challenging period’ for UK financial stability, and reaffirmed that banking rules must remain strong in the face of ‘Brexit’ fears. Despite worries that London will no longer retain its status as the financial centre of Europe, the BoE is resisting pressure to loosen the reigns to make London more attractive for investors.

US Dollar (USD) Exchange Rates Slump as Markets Forecast December Rate Hike

The market reacted strongly to Wednesday’s Fed decision to keep the current interest rate, softening the ‘Greenback’ against most other majors and triggering gains for the GBP USD exchange rate.

In light of the perceived strength of the US economy the case for an increase in interest rates had grown in recent weeks and during Wednesday’s meeting three dissenters voted for a quarter-point rise, the largest number of dissents since December 2014.

Federal Reserve Chairwoman Janet Yellen said in a press release on Wednesday that it made sense to put off a rate hike at a time when discouraged Americans were looking to return to the labour force. Despite this she was forced to rebuff claims from Trump that her neutral outlook towards a rate increase was politically motivated.

The Fed did indicate that a rate hike would occur by the end of 2016 however, which has markets predicting a 0.25 increase in rates in December.

Current Exchange Rates

At the time of writing the GBP/USD exchange rate was trending around 1.3052 and the USD/GBP exchange rate was trending around 0.7661.

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