Following a surprise strong uptick in UK inflation, the GBP to USD exchange rate climbed to a weekly best conversion of 1.4340 early this week. Where next for the pound sterling in relation to the US dollar this week?
Foreign exchange markets saw the British pound to dollar exchange rate rally off recent 2016 lows as we started the new trading week. See today's update.
USD investors been inclined to reassess the likelihood of an April interest rate hike from the Fed this week, as commentary from members of the Federal Open Market Committee (FOMC) has taken on a more dovish tone.
By contrast consolidation trading has shored up Pound Sterling (GBP), particularly as hopes over the future of the UK steel industry rose in response to the selling of some of Tata Steel’s UK assets.
As a result the Pound Sterling to US Dollar (GBP/USD) exchange rate made strong gains at the start of the week, reversing some of the losses of recent weeks as sentiment improved.
Other Foreign Exchange News
Latest Pound/Dollar Exchange Rates
On Saturday the Euro to British Pound exchange rate (EUR/GBP) converts at 0.856
The live inter-bank GBP-EUR spot rate is quoted as 1.168 today.
The GBP to GBP exchange rate converts at 1 today.
NB: the forex rates mentioned above, revised as of 27th Apr 2024, are inter-bank prices that will require a margin from your bank. Foreign exchange brokers can save up to 5% on international payments in comparison to the banks.
US Dollar Turns Bearish on FED Dovishness
Contrary to the greater disparity in policymaker opinion seen in the latest FOMC meeting minutes members of the Committee have opted to err more on the side of caution this week, with a greater emphasis on patience.
While Federal Reserve Bank of Dallas President Robert Kaplan did express some openness to the possibility of a June rate hike in comments on Monday evening the predominant message of the speech remained skewed towards dovishness.
An unexpected decline in NFIB Small Business Optimism added to the US Dollar’s downside bias on Tuesday, with Rob Carnell, Chief International Economist at ING, stating:
‘We anticipate that Fed speaker comments due over coming days will begin to reflect this mixed outlook with some of the hawks toning down their comments for the Fed to “get on with it”, and an April rate hike looking a fairly distant prospect without a rapid and meaningful turnaround in the newsflow.’
UK Inflation Bettered Expectations to Boost GBP/USD Conversion Rate
Demand for the British Pound strengthened substantially in the wake of the March UK Consumer Price Index report, as inflationary pressure was found to have risen further than forecast.
With inflation clocking in at 0.5% rather than 0.4% on the year the outlook of the domestic economy was somewhat strengthened, prompting investors to begin speculating that the Bank of England (BoE) may not leave interest rates on hold for quite as long as previously suggested.
This stronger showing suggests that the negative impact of ‘Brexit’ uncertainty has been more limited than feared, although at least part of this jump in inflation is attributable to the fact that the stronger oil price of early 2015 has fallen out of the target range.
Bank of England Rate Decision Forecast to Soften Pound Sterling (GBP) Exchange Rates Demand
Even so, this improvement is not likely to trigger any major change in direction from the BoE at Thursday’s policy meeting, with the Monetary Policy Committee (MPC) expected to once again vote 9-0 in favour of leaving interest rates on hold.
Should the accompanying meeting minutes prove dovish the GBP/USD exchange rate could reverse its recent uptrend, particularly as markets remain preoccupied with the possibility of the UK voting to leave the European Union in the June referendum.
As Wednesday’s US Advance Retail Sales are anticipated to show an increase in consumer demand, meanwhile, the US Dollar could begin to recover some of its strength in spite of the Fed’s heightened cautiousness.
UPDATE 14/04/2016:
Although the latest US data rather countered hopes for the Fed to resume raising interest rates in April this did not stop the US Dollar exchange rates (USD) from continuing to advance across the board.
As the Bank of England (BoE) choose to leave interest rates at their current level, albeit unsurprisingly, the British pound to dollar exchange rate slumped.
In their latest exchange rate forecast for the pound-dollar exchange rate, Lloyds see the pair falling to 1.47 by the start of 2017:
"On balance, we favour GBP/USD to stabilise over the near term, particularly with long - term support - between 1.38 and 1.35 (which has held since 1985) - relatively close. Beyond the uncertainty of the coming months, we expect the pair to rally back towards fair value around 1.47 by end - 2016, primarily because we anticipate the BoE will begin to raise interest rates in Q4 - 2017, well in advance of what is implied by the market."
UPDATE 13/04/2016:
The pound sterling fell for two consecutive days against the US dollar as a hawkish FED saw renewed strength in the US currency.
Markets await the release of the Bank of England's meeting minutes, due for publish at 12:00 GMT+1.
Somewhat unsurprisingly the outlook of the Fed has been muddied again, with Richmond Fed President Jeffrey Lacker indicating a belief that the central bank could still raise interest rates four times over the course of 2016.
As a result the pound vs dollar exchange rate slumped, despite the fact that Lacker does not hold a vote on monetary policy this year.