British Pound to Dollar Exchange Rate Outlook - Will GBP USD Continue to Plunge?

July 31, 2014 - Written by John Cameron

STORY LINK British Pound to Dollar Exchange Rate Outlook - Will GBP USD Continue to Plunge?

Curreny News UK - Today's US Non-Farm Payrolls report was forecast to print strongly and, as predicted, saw the Pound to Dollar slide lower on a strengthening US currency. The latest GBP USD exchange rate converts at 1.68218 (revised to relect end-of-week trading prices, 02/08/2014).

As the week's trading session concludes we find Sterling on the back foot against a number of global forex pairs:

- The Pound to Australian Dollar exchange rate is trading down 0.45 pct at 1.80800.
- The Pound to Canadian Dollar exchange rate is trading down 0.28 pct at 1.83720.
- The Pound to Euro exchange rate is trading down 0.61 pct at 1.25390 GBP/EUR.
- The Pound to NZ Dollar exchange rate is trading down 0.41 pct at 1.97787.
- The Pound to Dollar exchange rate is trading down 0.32 pct at 1.68377 GBP/USD.

Thursday's session has brought a significant increase in fear levels amongst investors following the news that Argentina has defaulted on its sovereign debt for the second time since the turn of the century.

The South American nation admitted defeat and reneged on $1.3bn worth of gilts overnight following the refusal of New York bond-holders refused to negotiate on accepting a full pay-out for the promises-to-pay.

The news has caused a flight to safety in the global markets, although this dip in appetite for risk was far more limited than that which followed Argentina’s debt default of 2001 when citizens’ bank accounts were frozen in an effort to stop a run on the nation’s retail banks. Nevertheless, the overnight news saw the VIX ‘Fear Index’ climb from a lowly 13.08 during the final stretch of yesterday afternoon’s European equities session all the way up to 14.04 this morning – an increase of a hefty 7.34%.
Levels on the VIX had dropped to 13.13 just after 1900hrs yesterday evening when US Federal Reserve Chair Janet Yellen took to the lectern for her latest post-policy announcement press conference. Market participants had been concerned that the Fed Chief might suggest, following yesterday afternoon’s highly encouraging US GDP data, that domestic interest rates would be increased sooner rather than later.

Instead, Yellen elected to partially dismiss the positive nature of recent US jobs data, observing instead that, ‘a range of indicators suggest significant underutilization of labor resources.’ The Fed Chair’s apparent downgrading of the overall unemployment figure as the primary measure of the American economy’s readiness to tolerate an interest rate increase implies that a tightening of policy may be some way off. Lou Crandall of Wrightson ICAP backed this up, predicting yesterday that, ‘the labor-market signals have a bigger policy weight, which is why they don’t expect to tighten maybe for a year.’

Meanwhile, equities traders across the globe breathed a sigh of relief as the Fed asserted that, ‘even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.’ VIX pulled back as a consequence.

However, given the knock-on impact of the situation in Argentina and the potential for a dip in investor sentiment caused by the ongoing situations in Ukraine, Gaza and beyond, VIX is unlikely to remain at its current ultra-low levels for long.

For more exchange rate forecasts or to compare exchange rates on an international money transfer deal, please refer to the main Currency News UK website.

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