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US Dollar to Pound Sterling Exchange Rate Outlook Little-Changed by Bank of England (BoE) Decision

Bank of England

US Dollar to Pound Exchange Rate Fails to Capitalise on Less Dovish Federal Reserve

Despite a more hawkish than expected tone from the Federal Reserve last night, the US Dollar to Pound Sterling (USD/GBP) exchange rate saw fairly steady movement ahead of today’s Bank of England (BoE) policy decision.

Since opening this week at the level of 0.8000, USD/GBP has seen and failed multiple attempts to recover from last week’s plunge.

While USD/GBP trends a little above the week’s opening levels today, the pair has only seen modest gains and trends near the level of 0.8030 despite poor UK data and a lack of optimistic Brexit news.

The US Dollar (USD) has been unable to capitalise fully on this week’s oil price jitters or Federal Reserve news, limiting USD/GBP gains. The Pound (GBP), on the other hand, was made less appealing following today’s UK data and Bank of England news.

US Dollar (USD) Exchange Rate Demand Limited despite Seemingly Hawkish Federal Reserve

The US Dollar saw a brief jump in demand on Wednesday evening, as the Federal Reserve appeared to avoid the dovish stance that many economists had been expecting.

Amid recent weakness in US data and an inverting US bond yield curve, as well as ongoing US-China trade tensions, US recession speculation has risen. Despite this though, the Federal Reserve was fairly optimistic about the US economy.

The Fed cut US interest rates as was widely expected, but the bank expressed confidence in the economy’s strength. Bets of further easing this year lightened.

According to Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group:

‘There is now a likelihood that as of today, this might be the last rate cut of the year as the ‘mid-course adjustment’ process continues but could be done. So call this a hawkish cut. The stock market is of course disappointed with the limit on the amount of candy they’ll get but more rate cuts assumes an ever slowing economy and that’s not something to cheer for.’

While a more hawkish tone like this would normally keep the US Dollar strong though, the US currency struggled to hold notable gains today until the Pound started to weaken.

This was partially due to the Bank of Japan (BoJ) also taking a more hawkish stance than expected.

Pound (GBP) Exchange Rates Unappealing Following UK Data and Bank of England (BoE) News

Hopes for the Pound to resume a rally it began last Friday are running out of steam, as the week heads to an end without any notable fresh support for the British currency.

Sterling has largely avoided big losses and has held its ground this week due to speculation that UK Prime Minister Boris Johnson could still find a way to secure a Brexit deal before the 31st of October Brexit date.

However, amid a lack of notable optimistic Brexit news, the Pound was weakened slightly by UK data and the Bank of England’s (BoE) September policy decision.

UK retail sales unexpectedly contracted in August due to a fall in online retail activity, and the Bank of England (BoE) left UK monetary policy untouched while continuing to express concern about Brexit uncertainty.

The bank noted that trade war concerns were worsening, but expected Britain to avoid a recession this year despite Brexit uncertainties and fears.

However, the bank also expressed concern with a potential Brexit delay leading to further uncertainty, and this uncertainty meaning a longer period of weakness in Britain’s economy.

Overall the BoE news had little impact on the Pound outlook, but also gave investors little to be bullish about regarding the Pound. Following this week’s UK data, the Pound is struggling to hold near its highs.

US Dollar to Pound (USD/GBP) Exchange Rate Focus to Turn towards Brexit and US Data

Investors will continue to digest this week’s central bank news through the end of the week, but market attention will also be turning back towards developments in UK politics and Brexit, as well as upcoming US data.

The remainder of the week’s economic calendar is fairly quiet. US existing home sales data will be published this afternoon, but asides from that investors will be looking at geopolitical news and awaiting next week’s calendar.

Perhaps the biggest potential for further USD/GBP movement before the weekend depends on if there is any surprising Brexit news.

The UK government’s decision to prorogue parliament for five weeks is currently being questioned in Britain’s Supreme Court, and today is the final day of the hearing.

If there are any surprise developments it could have an impact on the government’s Brexit plans, which could of course influence the Pound’s outlook.

With US-China trade negotiations set to resume today as well, global trade news could also influence the US Dollar to Pound (USD/GBP) exchange rate’s late-week movement.