GBP/USD Exchange Rate Rises as US Markets Retract on Rate Hike
The Pound US Dollar (GBP/USD) exchange rate is up today, and is currently trading at $1.2695 after the US Federal Reserve raised interest rates by 0.25% to 2.5% yesterday.
The move caused US stock markets to fall and took place despite a backdrop of mounting geopolitical tensions between the US and China.
The US Dollar (USD) initially strengthened but has since weakened after the Fed showed a dovish forecast for 2019, indicating a slowing US economy.
Jorge Mariscal, Chief Investments Officer at UBS Global Wealth Management, commented:
‘People are worried about growth and to hear the Fed isn’t (worried) concerns the market.’
The Pound (GBP), meanwhile, lacked support after yesterday’s release of the UK retail price index for November, which showed a decrease to 0.0% against last month’s 0.1%.
Yesterday also saw the publication of the UK existing home sales for November, which, however, showed a larger-than-expected increase at 5.32M against last month’s 5.22M.
GBP/USD Exchange Rate Up as Bank of England Keeps Rates Steady
The Pound (GBP) was further strengthened against the US Dollar (USD) today with the release of the retail sales figures for November showing a better-than-expected increase at 1.4% against October’s -0.4%.
Today saw the release of the Bank of England’s (BoE) interest rate decision, with rates remaining static at 0.75% amid continuing Brexit uncertainty.
Mark Carney, Governor of the BoE, commented:
‘Heightened Brexit uncertainties were evident across a range of domestic financial markets.’
US Dollar to Pound (USD/GBP) Exchange Rate Plunges after Fed Interest Rate Hike Panics Markets
The US Dollar (USD) has been weakened by yesterday’s rate rise from the Fed, with Russ Mould, an investment director at stockbrokers AJ Bell, calling the hike ‘a bit of a double whammy’
Fed Chair Jerome Powell indicated there would be a slowing of pace of rate hikes in 2019, while still committing to two more.
Brian Coulton, Chief Economist at Fitch ratings agency, commented:
‘Given the stock market declines and negative international economic news – recognised in the statement – this still points to quite a bit of confidence at the Fed in the ability of the US economy to withstand a few more rate hikes.’
Today will see the publication of US continuing jobless claims for December which are expected to increase, potentially denting USD further.
These will be followed by the release of the Philadelphia Fed manufacturing survey for December which is expected to decrease.
GBP/USD Outlook: Brexit and Global Economic Uncertainties to Remain in Focus
The Pound US Dollar (GBP/USD) exchange rate is likely to be driven by politics in the coming week, with Brexit remaining in focus for many Sterling investors as Theresa May struggles to gain backing for her UK-EU withdrawal agreement.
Looking ahead to tomorrow the US will see a slew of data releases, with the most significant being the Q3 GDP price index, which will be in focus after yesterday’s interest rate hike.
These will be followed by the US durable goods orders for November which are expected to increase, potentially providing a leg-up for the USD.
Tomorrow will also see the release of the UK Q3 GDP figures which are expected to remain static.
Following these will be the public sector borrowing figures for Novembers, which are expected to decrease.
After Friday there will be few data releases to note for either currency until after Boxing Day, with political factors likely to affect the GBP/USD exchange rate in the meantime.