The Pound to US Dollar exchange rate (GBP/USD) declined by around 0.3 cents last night as the latest FOMC statement was seen to increase the chances of the Federal Reserve tapering its asset purchasing scheme in the next few months.
The Minutes communicated that the Fed expects upcoming data to “prove consistent with the Committee’s outlook for ongoing improvement in labour market conditions and would thus warrant trimming the pace of purchases in the coming months”.
This key line from the FOMC statement sent GBP/USD down to 1.6100 last night. The report also showed that the US Central Bank is concerned that financial markets will react negatively when QE3 is finally wound down, citing this apprehension as part of the reason that the taper has not yet begun.
BoE Minutes dovish, Sterling still strong
Earlier in the day the Bank of England released the Minutes from its November meeting, showing that all nine policymakers were in agreement that the asset purchasing target of £375 billion did not need bolstering this month.
The report struck a slightly more dovish tone than analysts had expected, with policymakers expressing concerns as to the durability of Britain’s nascent revival. The BoE also mentioned that inflation was not likely to impact monetary policy, and suggested that interest rates would not necessarily be raised as soon as Unemployment falls to the 7.0% threshold.
The Pound faltered in a knee-jerk reaction to the dovish remarks, however, Sterling managed to post a fresh 3-week high against the US Dollar during the afternoon as sentiment towards the UK currency remained strong.
US inflation down, Retail Sales up
In the United States it was reported that the Consumer Price Index inflation rate fell from 1.2% to 1.0% during October. The soft print brings CPI down to half the Federal Reserve’s target rate of 2.0%, which weakened demand for the ‘Greenback’ because it was seen to reduce the probability that the Fed will look to tighten monetary policy (taper asset purchases).
However, the US Dollar received a small boost from data showing that Advance Retail Sales volumes expanded by 0.4% last month. Because of the 16-day government shutdown, private consumption had been expected to stagnate at 0.0% during October. Private consumption accounts for around 70% of US GDP and subsequently the strong Retail Sales figure could lead to an upward revision to US third quarter growth.
GBP/EUR rallies past 1.2000
The Pound to Euro exchange rate (GBP/EUR) jumped higher by around a cent yesterday afternoon, breaching resistance at 1.2000 as reports surfaced suggesting that the European Central Bank is close reducing its deposit rate by -0.1% into negative territory.
Comments are closed.