Pound Sterling US Dollar (GBP/USD) Exchange Rate Slides After Fed Rate Hike
In the wake of the Federal Reserve’s decision to raise interest rates the Pound Sterling to US Dollar (GBP/USD) exchange rate has remained under pressure.
Although the rate hike was largely anticipated the relative hawkishness of comments from policymakers encouraged the US Dollar (USD) to push higher against its rivals.
As the Fed looks set to raise interest rates two more times before the end of the year the prospect of this more aggressive monetary tightening cycle supported USD exchange rates.
Even so, Sean Callow, research analyst at Westpac, commented:
‘On the positive side, the projections reinforced recent comments from officials that the Fed’s baseline scenario is that the funds rate is likely to be raised a little above the long term or neutral rate.
‘We continue to expect this to lend underlying support to the US dollar, albeit tempered by the US’s widening fiscal and trade deficits and of course the fact that markets already have priced in ongoing rate rises.’
GBP/USD Exchange Rate Fails to Benefit From Stronger UK Retail Sales
Although the UK’s May retail sales data proved unexpectedly positive this failed to keep the Pound Sterling to US Dollar (GBP/USD) exchange rate on a stronger footing for long.
Markets remain concerned by the underlying fundamentals of the retail sector, which looks set to come under further pressure over the coming months as Brexit jitters mount.
Confidence in Pound Sterling (GBP) is unlikely to pick up significantly ahead of Thursday’s Bank of England (BoE) policy announcement.
While there is no expectation that the BoE will opt to raise interest rates at this juncture investors are still keen to gauge the outlook of policymakers.
If the BoE shows signs of hesitance this could undermine the odds of an August interest rate hike, undermining the appeal of the Pound.
On the other hand, greater signs of confidence would offer GBP exchange rates a solid rallying point.
High Expectations of Further Fed Tightening Limit Pound Sterling US Dollar (GBP/USD) Exchange Rate Potential
Commentary from Fed policymakers could help to keep the Pound Sterling to US Dollar (GBP/USD) exchange rate under pressure, meanwhile.
As long as communication from the Fed continues to paint a hawkish picture the US Dollar is likely to remain in a relatively bullish mood.
With forecasts pointing towards a recovery in the latest raft of US housing market data USD exchange rates could find further support over the coming week.
Focus will also fall on the latest jobless claims figures, with signs of a continued tightening of the US labour market likely to bolster the appeal of the US Dollar.
Any downside disappointments, though, may knock back demand for the US Dollar, especially as markets have already largely priced in the impact of further Fed interest rate hikes.
Political worries over the threat of a global trade war could also provoke volatility for the Pound Sterling to US Dollar (GBP/USD) exchange rate.