Pound US Dollar Exchange Rate Flounders as Both Currencies See Mixed Movement
Strength in both currencies has led to highly volatile Pound US Dollar (GBP/USD) exchange rate movement in recent weeks. Even this week, as investor pull back on recent highs, both currencies are jittery.
Last week saw GBP/USD dip before ultimately climbing from the level of 1.3791 to 1.3830 throughout the week. When markets opened this week, GBP/USD briefly jumped to a fortnight best of 1.3918 before recoiling.
At the time of writing on Wednesday, GBP/USD trends closer to the week’s opening levels again. GBP/USD is trending in the region of 1.3822.
Unless there is a surprise in this evening’s upcoming Federal Reserve meeting minutes, the Pound to US Dollar exchange rate outlook could remain mixed as markets await more key data next week.
Pound (GBP) Exchange Rate Outlook Remains Strong despite Miss in Services PMI
Today saw the publication of Britain’s final March services PMI. The PMI fell slightly short of projections, coming in at 56.3 rather than 56.8.
As services make up the biggest chunk of Britain’s economic activity, this PMI dampened the Pound’s (GBP) appeal today. Sterling was sold from its best levels in profit-taking yesterday.
Still, despite the PMI missing projections the data still continued to indicate that Britain’s economy was in for a strong rebound. This kept the Pound from falling further against a strong US Dollar (USD) today.
US Dollar (USD) Exchange Rates Also Pull Back after US Yield Drop
US bond yields fell back from recent highs over the past day, which similarly left investors selling the US Dollar back from its own recent highs.
With both the Pound and US Dollar falling from highs in the past day, GBP/USD movement was jittery. Losses were limited as the US Dollar struggled to capitalise.
According to Esther Reichelt, Analyst at Commerzbank, the US Dollar may struggle to climb much higher without signs of tighter Federal Reserve policy:
‘Further and more pronounced USD gains would only be justified if this boom also caused rising inflation rates to which the Fed would have to react with higher interest rates.’
Pound US Dollar (GBP/USD) Exchange Rate Investors Await Fed Meeting Minutes
Most of this week’s notable UK data has been published already. With the Pound outlook unlikely to be influenced by anything besides coronavirus developments until next week, GBP/USD may be more driven by the US Dollar instead.
This evening will see the Federal Reserve publish its latest meeting minutes report. The Fed showed no signs of change to its tone at its March policy decision, so the minutes are not expected to show any change either.
However, if the Fed shows any signs at all that inflation could make it more hawkish, the US Dollar is likely to see a more prolonged rise in demand. Strategists at ING said:
‘Investors will be scanning the minutes in search of any ‘discomfort’ among policymakers about rising inflation prospects and in parallel any hint that the discussion is migrating towards defining a timeline for tapering asset purchases,’
US wholesale inventories on Friday and UK growth rate data next week will also be closely watched by Pound US Dollar (GBP/USD) exchange rate investors for now.