GBP USD Exchange Rate Falls, GBP AUD & GBP NZD Rates Gain

Modified: Wednesday, 22 May 2013 18:41 BST - Written by Ben Hughes

STORY LINK GBP USD Exchange Rate Falls, GBP AUD & GBP NZD Rates Gain

Price action in the global currency markets yesterday afternoon was determined by a public statement from the US Federal Reserve Chairman Ben Bernanke. The head of America’s central bank had some interesting comments to make which had an unexpected effect on price action for several of the world’s major currencies.

Bernanke was addressing Congress’s Joint Economic Committee and committee members were keen to learn his thoughts on the state of the real economy in the US. However, market participants were listening out for something altogether different. Investors were hanging on Bernanke’s every work for any indication on the future direction of the Fed’s monetary policy. Bernanke did not disappoint, informing Congressman that it was far too early to counsel a scaling down of America’s US$85bn per calendar month asset purchase scheme. However, the Fed Chairman went further than this, and put his full weight behind the highly controversial policy, stating that his Bank’s ultra-loose stance was providing ‘significant benefits’ to the American economy and without the crutch of low interest rates coupled with QE, the recovery in the US would be at risk of ‘slowing or ending’.

Economists had posited that a vote of confidence in QE from Bernanke yesterday would cause the US Dollar to weaken significantly. The laws of supply and demand dictate that by flooding the market with an asset, the value of that asset depreciates. With Bernanke giving no indication that the US$1bn+ per year scheme is going to be scaled down for the foreseeable future, it was a fair assumption that the Greenback would come under heavy selling pressure. However, in a perverse turn, the Buck actually strengthened following Bernanke’s words, sending the GBP USD exchange rate (currency : GBP USD) down to as low as 1.5015 by the middle part of the North American session.

It appears that the Fed Chairman’s comments triggered a flight to safety as investors feared the worse regarding the global recovery. The support for the USD evidenced the fact that, in a storm, the US Dollar is still considered to be the safest haven of all. The dip in global risk appetite had the additional effect of sending the Pound to Australian Dollar exchange rate (currency : GBP AUD) back into the middle 1.5500s and the Pound to New Zealand Dollar exchange rate (currency : GBP NZD) through the 1.8600 level once again.

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