Dovish FOMC Comments Prompt US Dollar (USD) Exchange Rate Slump
Pundits were not particularly surprised by the dovishness of last night’s Federal Open Market Committee (FOMC) policy decision, as policymakers suggested that global economic developments might delay the pace of future interest rate hikes. Nevertheless, the Pound Sterling to US Dollar (GBP/USD) exchange rate has been on an uptrend on Thursday morning in the region of 1.4270.
Although sentiment towards the US Dollar (USD) has been more volatile ahead of the first Federal Open Market Committee (FOMC) meeting of 2016 the Pound Sterling to US Dollar (GBP/USD) exchange rate has slumped in response to weaker UK housing data.
Stronger US Consumer Confidence Failed to Bolster US Dollar (USD) Exchange Rate
Bettering forecast, the January US Consumer Confidence Index clocked in at 98.1 rather than 96.5 to indicate that sentiment in the world’s largest economy had remained upbeat in spite of recent market turmoil. However, as the latest US Services PMI proved decidedly weaker than expected the Pound Sterling to US Dollar (GBP/USD) exchange rate remained on a strong uptrend throughout yesterday’s European session. Despite fresh volatility on global stock markets the ‘Greenback’ (USD) was softened, as a liquidity injection by the People’s Bank of China (PBoC) boosted hopes of further economic stimulus to come and consequently reduced demand for safe-haven assets.
Although the Pound (GBP) was lacking in any particular support from domestic data on Tuesday the currency began to regain recently lost ground. Comments from Bank of England (BoE) Governor Mark Carney to a government committee suggested that the policymaker was perhaps not quite so dovish with regards to interest rates as previously thought, pushing Sterling higher against rivals.
Disappointing UK Housing Data Pushes Pound Sterling (GBP) Lower Today
The Pound’s latest rally was not to last, however, after January’s Nationwide House Prices data disappointed pundits. Defying expectations, growth in house prices slowed on the year to 4.4% rather than continuing to accelerate to 4.7%. While this weaker showing suggests that the domestic housing market is starting to cool somewhat, diminishing concerns of an expanding bubble within the market but equally displaying fresh slowness within the UK economy. As December BBA Loans for House Purchase equally fell short of forecast the appeal of Sterling has remained largely muted.
Ahead of tonight’s Federal Open Market Committee (FOMC) policy decision the US Dollar is in somewhat mixed spirits, with traders cautious over the likelihood that policymakers will emphasise a more dovish tone. Nevertheless the GBP/USD pairing has continued to shed value today, with the Pound unable to capitalise on the relative softness of the ‘Greenback’.
GBP/USD Exchange Rate Forecast: Dovish FOMC Comments to Weigh on US Dollar
Should members of the FOMC prove more hawkish with regards to the timing of future interest rate hikes the US Dollar is expected to strengthen further, in spite of concerns that the domestic economy might not be in as robust a state as hoped. Confidence is likely to be dented further if tomorrow’s Durable Goods Orders figure is revealed to have contracted, with declining orders suggesting more slowness within US production.
Nevertheless, the GBP/USD exchange rate could remain in a slump if the fourth quarter GDP results show that the UK economy slowed at the end of 2015, particularly as a weaker showing is likely to once again reduce the odds of a near-term BoE interest rate hike.
Current GBP, USD Exchange Rates
At the time of writing, the Pound Sterling to US Dollar (GBP/USD) exchange rate was slumped in the region of 1.4306, while the US Dollar to Pound Sterling (USD/GBP) pairing was making gains around 0.6991.