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Pound US Dollar Exchange Rate to Climb Above $1.39 on Dovish Fed?

GBP/USD Exchange Rate Muted as Market Brace for Fed Rate Decision 

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning, as investors are reluctant to make any aggressive bets ahead of the Federal Reserve’s latest rate decision. 

At the time of writing the GBP/USD exchange rate is trading at around $1.3876, virtually unchanged from today’s opening rate. 

Will a Dovish Fed Send the US Dollar (USD) Lower? 

The US Dollar (USD) looks poised to weaken later this evening as the Federal Reserve concludes its July policy meeting. 

The Fed surprised investors by striking a surprisingly hawkish chord in its previous meeting, economists are predicting a more cautious tone from the bank this time around. 

Despite inflation skyrocketing to 5.4% last month, analysts predict that the Fed is likely to shy away from any discussions regarding the potential tapering of its stimulus programme this month, with Fed Chair Jerome Powell recent suggesting the US economy is still ‘some ways off’ tightening its monetary policy. 

This more dovish outlook from the bank is likely to coincide with the rapid spread of the Delta variant of the coronavirus throughout the US, the uncertainty of which is likely to see the Fed adopt a ‘wait and see’ approach to monetary policy. 

A more cautious tone from the Fed is likely to drag on the US Dollar as it tempers expectations that the Federal Reserve could start raising interest rates before 2023. 

Pound (GBP) Buoyed by Positive Coronavirus Statistics  

Meanwhile, the Pound (GBP) is underpinned by recent UK coronavirus statistics, which currently point to a sustained fall in new cases. 

The UK has now recorded seven consecutive days in which daily infections have fallen, resulting in a 40% drop in coronavirus cases over the past week, and bolstering hopes that the UK could be in the home stretch of the pandemic. 

Professor Neil Ferguson, whose modelling led to the first nationwide lockdown, suggests: 

‘I’m positive that by late September, October time, we will be looking back at most of the pandemic. We’ll still have Covid with us, we’ll still have people dying from Covid, but we’ll put the bulk of the pandemic behind us.’ 

However, the upside in the Pound looks to remain limited amidst fears that the lifting of all legal restrictions in England on 19 July could trigger a resurgence in cases once it feeds through into the data. 

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