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USD GBP Forecast: Could Hawkish Fed Minutes Increase Odds of March Rate Hike?

US Dollar Currency Forecast

Despite an ongoing lack of detail over Donald Trump’s proposed tax reforms and a sense of political turmoil the US Dollar remained on a stronger footing ahead of the weekend.

Concerns over the scandal surrounding the resignation of Michael Flynn and the apparent difficulty in appointing a new national security advisor failed to keep the US Dollar on a downtrend.

Investors have remained persistently optimistic regarding the possibility of fiscal stimulus, even in the absence of any firm plan.

This has maintained the underlying bullish trend of the US Dollar, particularly as the general sense of market risk appetite weakened.

As the Philadelphia Fed business outlook unexpectedly surged from 23.6 to 43.3 in February, defying forecasts of a sharp dip, there seemed to be little cause to sell the ‘Greenback’ towards the close of the week.

With the odds of a March interest rate hike from the Federal Reserve already heightened by recent policymaker commentary the appeal of the US Dollar could remain bullish.

In that respect, the US Dollar Pound (USD GBP) exchange rate is likely to see volatility ahead of the release of the Fed’s February meeting minutes.

As analysts at RBC Capital Markets noted:

‘The economic release calendar in the US is very light in this holiday-shortened week, which means that the lone highlight may garner more attention than it deserves. The FOMC Minutes are likely to come and go with little new information beyond what we already learned from Yellen during her Congressional testimony.’

If the minutes indicate that a majority of policymakers could be inclined to raise interest rates sooner rather than later USD exchange rates could trend higher.

However, any signs of caution within the Federal Open Market Committee (FOMC) could diminish the odds of a March hike and limit demand for the ‘Greenback’.

Demand for the Pound, meanwhile, is likely to remain on a weaker footing as concerns over the health of the UK economy mount.

Friday’s unexpectedly weak retail sales figures weighed heavily on Sterling, signalling that consumer spending has already begun to weaken even before the increased squeeze on earnings.

Although no real change is expected from the second revision of the fourth quarter gross domestic product report this could offer the Pound a rallying point.

Any signs of continued resilience within the domestic economy could boost Sterling’s appeal, putting pressure on the USD GBP exchange rate.

Brexit-based developments could also influence the Pound in the near future, particularly if the House of Lords opts to amend the government’s Article 50 bill and trigger a game of parliamentary ping-pong.