The Pound has made minimal gains against the US Dollar on the afternoon of 22nd February, with the GBP/USD rate rising to 1.3933.
This small appreciation for Sterling follows the news that UK GDP growth has been revised down in Q4 2018.
UK business investment is also reported to be slowing, so the GBP/USD advance is primarily because the US Dollar has weakened.
Federal Reserve official James Bullard has damaged the US Dollar by warning that the US economy could suffer under too many interest rate hikes.
(Last updated 22nd February, 2018)
The Pound has continued to slide against the US Dollar (GBP/USD) on the afternoon of 21st February, following a high-impact Bank of England (BoE) event.
At a meeting with the Treasury Select Committee, BoE Governor Mark Carney hinted at three interest rate hikes over the next three years.
Although this statement initially led to traders buying the Pound as it appreciated, Sterling’s advance was only temporary.
Losses were blamed on a condemnation of Pound depreciation, along with a lack of specific timing on when real wage growth would return.
(First published 21st February, 2018)
Lower Odds of UK Interest Rate Hike could Worsen GBP/USD Trading
The Pound to US Dollar exchange rate (GBP/USD) has fallen by -0.4% on 21st February, following the news that UK unemployment has risen for the first time since 2016.
This jobless rate growth was unexpected and has led to a number of economic forecasts, some of which point to further Pound losses in the future.
Among those responding to the data was University of Liverpool Professor of Finance Costas Milas, who warned that;
‘Today’s unemployment rate [growth] is potentially a turning point on the thinking of [Bank of England (BoE)] Monetary Policy Committee (MPC) members.
It is more likely than not that they will want to see a reversal of this rise in unemployment in the next few months, before contemplating another interest rate hike in May 2018’.
The BoE last increased UK interest rates in November 2017, although the hike from 0.25% to 0.50% just restored interest rates to the same level held since 2009.
Traders have been eagerly awaiting signs of one or two interest rate hikes in 2018.
If the unemployment data seems to have put BoE officials off the idea, however, then the Pound could tumble against the US Dollar and most other peers.
US Dollar to Pound Forecast: USD/GBP Exchange Rate Rally possible on Federal Reserve Minutes
The US Dollar to Pound exchange rate has a chance at rising sharply based on the content of upcoming Federal Reserve minutes.
The Fed will be releasing the minutes from its late January monetary policy meeting this evening; at the time Fed officials kept interest rates unchanged at 1.5%.
If the minutes suggest that the Fed could be planning an imminent interest rate hike, the US Dollar to Pound exchange rate could rally.
There is still uncertainty about whether there will be three or four US interest rate hikes in 2018, so clarification from the Fed could also contribute to USD gains.
Q4 GDP Downgrade could Trigger US Dollar to Pound Exchange Rate Slump
Looking further ahead, there could be turbulence in the US Dollar to Pound exchange rate on 28th February, when second estimates for US GDP growth will be announced.
The Q4 quarter-on-quarter GDP growth rate reading is tipped to be downgraded from 3.2% to 2.6%, which might dampen forecasts for a March US interest rate hike.
Federal Reserve officials watch GDP as an indicator of US economic health; if the GDP reading deteriorates then expectations for a near-term rate hike may fade.
USD traders are looking out for conditions that support the odds of near-term interest rate hikes, so such a development might drag the USD/GBP exchange rate down.
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