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Will Pound to Dollar Exchange Rate (GBP/USD) Survive Forecasted US Rally in 2014?

July 20, 2014 - Written by Tim Boyer

The Sterling was placed close to the best 2014 pound to dollar and euro levels as the foreign currency markets began the week's trading, despite softening slightly at the end of the previous week as a result of the release of weaker than forecast domestic construction data. The current GBP USD exchange rate today is 1.70635, the GBP EUR is 1.26713. (22/07/2014 10:45)

The data showed that construction output dropped by 1.1% in May, the largest drop seen since February. Losses were restrained however as the data did little to impact expectations that the Bank of England will raise interest rates before the end of this year.

The US Dollar (USD) began the week weaker against most of its traded peers as investors awaited comments by Federal Reserve Chair Janet Yellen. The previous weeks Fed minutes had done little to inspire confidence that a rate rise will occur anytime soon.

Sterling then softened on Tuesday after Deutsche Bank said that it expected that the currency would fall further due to the previous week’s weaker-than-forecast construction and manufacturing data. It expected that the data will create downside pressures for next week’s UK GDP figures.

As a result of the comments investors embarked on a round of profit taking which in turn weakened Pound Sterling (GBP). The initial softness didn’t last long however as a report showed that UK inflation increased far more than expected.

Inflation in the UK increased more-than-expected last month to 1.9%, just off of the Bank of England’s target of 2%. Against the US Dollar the Pound briefly touched a new six-year high before easing later in the session. The strong inflation figure increased expectations that the Bank of England will raise interest rates before the end of the year. A Weaker than forecast wage growth report however took some of the shine off of the positive data and later in the week softened the currency.

The US Dollar Hits One Month High vs Euro

The US Dollar meanwhile advanced to a one-month high against the Euro (EUR) but was stuck close to a six-year low against the Pound Sterling (GBP). The ‘Greenback’ went higher after it found support from comments made by Federal Reserve Chairman Janet Yellen. The Fed governor suggested that the nation’s interest rates could rise sooner than expected if the economy continues to show improvement.

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As the week came to a close market sentiment became dominated by geopolitical factors. The suspected shooting down of a passenger jet over eastern Ukraine damaged market sentiment and spooked investors as they worried that the incident would further negatively impact relations between the West and its Allies and Russia.

The US Dollar exchange rate eased after news broke that a passenger jet crashed in eastern Ukraine. The currency fell sharply but further declines were restrained as uncertainty surrounded the cause of the crash. It is suspected that the jet was brought down by a missile, but as to who fired it remains a mystery. Recent mixed data is now likely to take a backseat to geopolitical concerns as tensions between the West and Russia rise and as the world watches Israel launching its first ground assault in the Gaza strip for five years. An escalation in the Ukraine crisis could lead to negative impacts in the wider global economy and further sanctions by the USA upon Russia would soften sentient further.

The Pound meanwhile ended the week lower against most of its major peers as investors embarked on a bout of profit taking and turned to safe haven currencies in the wake of the rising global tensions.

Live Dollar Exchange (USD) Rates, Updated 22/07/2014



The US Dollar to Australian Dollar exchange rate is trading down -0.31% at 1.06456 USD/AUD.
The US Dollar to Euro exchange rate is trading up +0.29% at 0.74166 USD/EUR.
The US Dollar to Pound Sterling exchange rate is trading up +0.02% at 0.58602 USD/GBP.
The Pound to Dollar exchange rate is trading down -0.02% at 1.70643 GBP/USD.
The Euro to Dollar exchange rate is trading down -0.29% at 1.34833 EUR/USD.
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