Pound US Dollar Exchange Rate at Risk of Falling Below $1.38
The Pound to US Dollar (GBP/USD) exchange rate is close to testing $1.37 this morning as a prevailing risk-off mood sees investors favour the safe-haven ‘Greenback’ ahead of the latest Federal Reserve rate decision later in the week.
At the time of writing the GBP/USD exchange rate is trading at around $1.3838, down roughly 0.4% from today’s opening rate.
US Dollar (USD) Gains to be Reversed by Dovish Fed?
The US Dollar (USD) has enjoyed solid support through the first half of this week, as the currency benefits from the risk-off mood and the continued rise in US Treasury yields.
However, the ‘Greenback’ may struggle to sustain these gains through the second half of the week after the Federal Reserve concludes its latest policy meeting.
No policy changes are expected from the Fed this month, leaving the spotlight on Fed Chair Jerome Powell’s accompanying press conference.
Recent comments from Powell have seen him reinforce the Fed’s current dovish stance that it will be ‘some time’ before conditions to begin tightening its monetary policy are met.
Should he reiterate this on Wednesday we could see the US Dollar relinquish some of its recent gains.
Powell could further undermine USD demand if he pushes back against forecast that inflation will accelerate rapidly in the coming months, with any tempering of inflation expectations likely to dampen US Treasury yields.
Will an Optimistic BoE Bolster the Pound (GBP)?
Meanwhile, the Pound (GBP) may find some support in the latter half of this week as the Bank of England (BoE) concludes its own policy meeting.
Much like the Fed the BoE is widely expected to leave its monetary policy untouched this month, with interest rates to remain at a record low of 0.1%.
Instead, the primary focus for GBP investors will be on the BoE’s economic outlook, particularly in light of the government’s lockdown easing roadmap.
This could send Sterling higher if policymakers are broadly supportive of the plans and forecast that it will allow for a sustained economic recovery in 2021.
On Monday, BoE Governor Andrew Bailey suggested that the UK economy will ‘get back at the end of this year to where it was at the end of 2019’, with similar optimism following this months meeting also likely to be supportive of the Pound.