Pound US Dollar Exchange Rate Struggles ahead of This Week’s Central Bank News
Despite lasting optimism in the UK recovery outlook, the Pound US Dollar (GBP/USD) exchange rate is struggling for direction today. Anticipation for upcoming central bank policy decisions is limiting major currency movements.
GBP/USD rebounded from a monthly low last week, but investors were hesitant to sell the US Dollar (USD) too much. GBP/USD climbed from the level of 1.3835 to 1.3921 throughout the week, recovering most of the previous week’s losses.
Since markets opened this morning though, GBP/USD has seen fairly narrow and mixed movement. At the time of writing, GBP/USD trends just below the week’s opening levels.
For now, Pound (GBP) and US Dollar investors are awaiting Federal Reserve and Bank of England (BoE) news expected later in the week.
Pound (GBP) Exchange Rates Remain Appealing on BoE Governor’s Comments
Bank of England (BoE) Governor Andrew Bailey held an interview with the BBC today. In comments similar to the ones from his speech last week, he said that he continued to be optimistic about Britain’s potential to recover from the coronavirus pandemic.
He said that Britain’s economy could return to near pre-pandemic levels by the end of the year, though he remained cautious.
Bailey also said that recent rises in financial market interest rates were consistent with the improving outlook. This overall kept investors confident in Britain’s outlook and the Pound’s recent surges.
US Dollar (USD) Exchange Rates Remain Strong as Markets Await Fed
The US Dollar has seen a broad rebound in demand since early March. News of US fiscal stimulus being passed as well as sighs of recovery in the US economy have led to speculation that the Federal Reserve could become more hawkish.
With the Fed expected to hold its March policy decision on Wednesday, the US Dollar remained appealing today. According to Kenneth Broux, FX Strategist at Societe Generale:
‘Monday’s trading theme is a continuation of the pattern we have seen in March and we have to see what the Fed does later this week to see if the rise in bond yields and Dollar strength versus low yielders can carry on,’
Pound US Dollar (GBP/USD) Exchange Rates Await Central Bank Decisions
The biggest focuses of the week for Pound and US Dollar investors will be central bank decisions due in the second half of the week.
The Federal Reserve will hold its March policy decision on Wednesday evening, followed by the Bank of England’s (BoE) March decision on Thursday.
Some analysts believe the market has become too optimistic on the US economy. According to Analysts at SEB:
‘The Fed is not expected to tinker with its monetary policy but instead communicate via forecasts that the situation is under control and that markets are running way ahead of themselves,’
If the Fed does attempt to temper market optimism, the US Dollar could weaken slightly and GBP/USD might recover more easily.
Upcoming US data, such as retail sales results tomorrow, could also influence the Pound US Dollar (GBP/USD) exchange rate outlook if it surprises investors.
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