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Pound Sterling to US Dollar Exchange Rate Investors Look Ahead to Federal Reserve Decision

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Pound to US Dollar Exchange Rate Rebounds Slightly after Last Week’s Losses

Amid a lack of strong drive in the Pound’s (GBP) movement recently, the Pound Sterling to US Dollar (GBP/USD) exchange rate has been driven more by shifts in the movement of the influential US Dollar (USD).

After opening last week at the level of 1.2992, GBP/USD briefly edged higher before spending most of the week tumbling.

After touching a two-month-low of 1.2869 towards the end of the week, GBP/USD steadied slightly and closed the week at the level of 1.2915.

This week so far, GBP/USD has continued its recovery attempt and trends closely to the level of 1.2933 at the time of writing.

However, amid a lack of fresh support for Sterling the pair’s gains are modest. Investors are anticipating a key Federal Reserve policy decision later in the week before making any solid movements on the pair.

Pound (GBP) Exchange Rates Edge Higher in Quiet Trade

Investors bought the Pound when markets opened on Monday, despite a lack of fresh support for the British currency, more in reaction to the latest dip in US Dollar trade.

According to Lee Hardman, Currency Strategist at MUFG in London:

‘The general weakness in the Dollar is contributing to the Pound’s strength and the moves may be exaggerated in a thin market,’

As a result, the Pound saw modest gains this morning even though there is little on the horizon for Pound investors that is likely to bolster the British currency’s uncertain outlook.

The Bank of England’s (BoE) May policy decision later in the week is not expected to lead to any shift in monetary policy sentiment, and UK politics remain filled with uncertainties ahead of next month’s EU elections.

Analysts doubt that UK Parliament will be able to reach an agreement on Brexit in time to avoid taking part in the EU elections.

US Dollar (USD) Exchange Rates Sold Following Last Week’s Gains

While last week’s US data was largely impressive, investors were hesitant to keep buying the already strong US Dollar when markets opened this week.

This was partially because markets are still not convinced that a global slowdown in economic activity is over.

Instead, amid expectations for quieter market activity due to Japan’s Golden Week holiday, investors opted to sell the US Dollar from its best levels in profit-taking.

According to Stephen Gallo, European Head of FX Strategy at BMO Capital Markets in London:

‘This is not the week during which we would be looking to put on large positions in FX in an attempt to profit from the market implications of one or more economic events,’

Essentially, investors are hesitant to buy the US Dollar much further following last week’s strong US data, especially ahead of the Federal Reserve’s May policy decision on Wednesday.

Pound to US Dollar (GBP/USD) Exchange Rate Investors Await Major US Data and Fed

UK government talks with the opposition are still in deadlock, and the next steps for the Brexit process uncertain. As a result, the Pound’s volatility remains low.

The US Dollar (USD), on the other hand, remains influential and slews of influential US data and news are expected this week.

This means the Pound to US Dollar (GBP/USD) exchange rate outlook will be driven by US Dollar movement in the coming sessions.

If today’s US Personal Consumption Expenditure (PCE) inflation data surprises investors it could cause some changes in Federal Reserve interest rate hike bets, but these are unlikely to cause much shift in US Dollar demand before Wednesday’s May Federal Reserve policy decision.

The Fed is not expected to announce any changes to monetary policy this week, but if the bank reacts to recent strong US data by indicating that there could still be an interest rate hike this year, the US Dollar would see a surge in demand.

Other factors that could influence the Pound to US Dollar (GBP/USD) exchange rate outlook later in the week include UK and US PMI data, as well as the Bank of England’s (BoE) May policy decision on Thursday.