The Pound Sterling to US Dollar (GBP/USD) exchange rate was able to rally towards the end of last week, reaching its highest point since the 16th of February as both the UK and the US await this week’s key central bank announcements.
Competitive GBP/USD Exchange Rate Allowed to Rise as ‘Brexit’ Fears Take a Backseat
While the Pound (GBP) suffered persistent weakness throughout the beginning of March, its inevitable bounce back seems to be beginning as investors tired of ‘Brexit’ concerns influencing continued weakness in the usually comparatively reliable Pound.
‘Cable’ currently moves at a negligible -0.2%, trending in the region of 1.4356. It is only slightly down on this morning’s opening levels of 1.4376. The limited market movement seen this morning is thought to be the result of both currencies feeling the impact of market anxiety on the cusp of upcoming announcements from the Federal Reserve (Fed) and Bank of England (BoE) later this week.
The UK’s Chancellor of the Exchequer George Osborne is also due to discuss Britain’s vital Budget throughout the week and is expected to dominate UK headlines. The government has already confirmed that low-paid workers could receive savings bonuses and implied that public spending could be cut by 50p for every £100 by 2020, causing unease.
However, from Thursday through to Friday last week the Pound jumped against its US rival by a considerable amount, from a low of 1.4137 to a high of around 1.4421.
A slightly relieved UK January trade deficit released last Friday is thought to have contributed to this. While the overall deficit did not narrow as much as forecast, the non-EU trade deficit came in at -£2199 as opposed to the forecast -£2650. UK construction output data also contracted less than expected at -0.8% rather than the forecast -1.7%.
European Central Bank (ECB) Key Announcements Influence Global Risk-Sentiment
The European Central Bank (ECB) President Mario Draghi announced last Thursday a series of measures to weaken the Euro and stimulate the Eurozone economy.
Unfortunately his comment that the central bank would likely not make further cuts to interest rates had the opposite effect on the financial market as investors purchased the Euro in high numbers.
As the USD/EUR pair is considered one of the most liquid pairs in foreign exchange, the Euro’s strength at the end of last week played a considerable part in weakening the US Dollar in many of its pairings, including ‘Cable’.
While sentiment towards the Euro has calmed down and investors are beginning to reconsider Draghi’s announcements, investors did not return to the USD in a hurry ahead of vital US data releases due later this week.
Risk sentiment had also increased as a result of the ECB’s announcement. Investors have their sights set on currencies riskier than the safe-haven US Dollar amid hopes of a Eurozone recovery and oil price gains.
Pound Sterling to US Dollar Exchange Rate Forecast Uncertain, BoE & FOMC Comments to Impact GBP/USD
While the upcoming week will continue to be politically charged for both UK and the US, with continued ‘Brexit’ debates in UK and primary elections in the US, FX investors have their eyes set on the 16th and 17th of March – Wednesday and Thursday of this week.
This Wednesday, the Federal Reserve (Fed) is due to make its interest rate announcement. Other US news to be aware of that day includes February’s CPI data and a press conference held by Federal Bank Chief Janet Yellen.
While the Fed is not immediately expected to increase interest rates after December’s hike to 0.50, the US economy is considered by many to have been growing steadily and without considerable complication over the last three months. A confident Fed would be ‘Greenback’ supportive while a dovish central bank may have a negative impact on US Dollar demand.
The Bank of England (BoE) is due to announce its rate decision on Thursday alongside their asset purchase target. Similarly to the US, the central bank are forecast to leave interest at a steady 0.50%.
Chancellor George Osborne is also set to make his budget speech to parliament on Wednesday, and UK headlines are already dominated by budget-related announcements.
Regardless of how negative or positive this week’s announcements are from either nation, strong movements in the GBP/USD pairing are expected as both sides anticipate vital economic decisions.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4354 while the US Dollar to Pound Sterling (USD/GBP) exchange rate trends in the region of 0.6966.
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