GBP/USD Exchange Rate Rises as Markets Brace for Fed’s Interest Rate Decision
The Pound to US Dollar (GBP/USD) exchange rate edged higher by 0.3% today, with the pairing currently trading around $1.296.
The US Dollar (USD) struggled against the six major currencies today, with ‘Greenback’ investors feeling anxious ahead of this evening’s announcement of the Federal Reserve’s interest rate decision. Investors generally expect the Fed to hold interest rates at 0.25%
Yujiro Goto, chief currency strategist at Nomura Securities, was concerned about a dovish policy stance from the Federal Reserve, saying:
‘Given the concerns about the second wave of infections, markets think the Federal Reserve is likely to take a dovish policy stance.’
Meanwhile, concerns over America’s economy are also weighing on the value of the US Dollar (USD). With a rising number of Covid-19 cases in the US, traders are becoming more concerned that the world’s major economy could be headed for a severe contraction this year.
In other US economic news, today will also see the release of the latest Pending Home Sales figure for June. If this confirms forecasts and falls from 44.3% to 15%, then we could see the US Dollar rise as safe-haven demand increases on concerns for the world’s largest economy.
Pound (GBP) Rises as UK Mortgage Approvals Beat Forecasts
The Pound (GBP) rose today after UK mortgage approvals rose four-fold in June, with the figure rising from 9,273 to 40 thousand. Consequently, GBP investors have become more hopeful that the UK’s economy could be recovering.
Simon Gammon, managing partner at the property firm Knight Frank’s finance division, commented:
‘The Bank of England data shows the beginning of a rebound that all of our indicators suggest is gathering pace. In fact, July is on course to be our busiest month on record.’
‘How long this surge lasts will depend on the development of the pandemic, and the effect on employment of the wind up of government support schemes during the autumn, but it’s clear interest rates are going to remain at or close to record lows for the foreseeable.’
Meanwhile, Brexit has remained in focus this week after London School of Economics (LSE) warned that the UK’s economy could be severely compromised by both Brexit and the Covid-19 pandemic.
GBP/USD Forecast: Could Weak US Growth Data Drag Down the US Dollar?
US Dollar (USD) investors will be looking ahead to tomorrow’s flash US GDP figure for the second quarter. If this confirms forecasts and falls by -34.1%, then we could see the ‘Greenback’ edge higher on safe-haven demand.
However, with America’s economy under increasingly pressures both externally and domestically, some investors are likely to remain weary of investing in the US Dollar.
Tomorrow will also see the release of the latest US Initial Jobless Claims for July. If these continue to rise, America’s economic woes could drag down USD.
The GBP/USD exchange rate, meanwhile, will remain sensitive to the UK’s coronavirus and Brexit developments. Any signs that UK-EU trade talks could reach a compromise would prove GBP-positive.