The US Dollar has jumped by 0.4% against the Pound today but may encounter high turbulence in the future if the Federal Reserve leaves near-term interest rates untouched.
Fed comments have recently been hawkish, with policymakers Loretta Mester and Patrick Harker both voicing support for rate hikes; Harker in particular has declared ‘I would not take March off the table at this point’.
This outlook has boosted US Dollar demand, though at the time of writing the chances of a March interest rate hike remained under 20%.
The Pound’s weakness against the US Dollar comes as the House of Lords debates the Article 50 bill, which is the last major step before the Government can finally trigger it and begin Brexit.
First day proceedings saw Theresa May deciding to sit in the Lords; an unusual decision given that the Conservatives do not hold a majority in the Lords.
The future for the USD GBP exchange rate may prove a turbulent one, given that the Fed may still leave US interest rates on hold during their March 15th meeting.
The Fed’s decision is largely dependent on how the US economy seems to be performing, so a consistent series of strong results will be needed to raise the odds of a near-term rate hike.
If no change takes place next month, USD investors will have to wait until the start of May for the next Fed rate decision.
The House of Lords debates will remain a key influence on the Pound in the future, given that they could result in a political upset for the Government.
Despite the Prime Minister’s desires for a clean passage for the bill, peers may still buck the Commons trend and attempt to amend the bill, which key Lords figures have stressed will not amount to ‘rejecting’ the legislation.
Labour leader in the Lords, Baroness Smith, has emphasised that amendments are still on the table;
‘We will not block, wreck or sabotage the legislation before us. But…neither shall we provide the Government with a blank cheque. We will seek improvements, we’ll encourage ministers to make reasonable changes and…we may ask our colleagues in the Commons to reconsider on specific issues. That is not delaying the process, it is part of the process’.
This attitude has been echoed by Liberal Democrats leader Lord Newby;
‘There is no significant body of opinion in this House which is seeking to oppose the passage of this Bill. [However] there’s a world of difference between blocking the Bill and seeking to amend it’.
The Pound could appreciate if any amendments make it through to the final bill, while a clean sweep of proposal rejections is conversely likely to weaken confidence in the Pound considerably.
Recent Interbank USD GBP Exchange Rates
At the time of writing, the US Dollar Pound (USD GBP) exchange rate was trending in the region of 0.80 and the Pound US Dollar (GBP USD) exchange rate was trending in the region of 1.24.
Comments are closed.