Pound to Dollar Exchange Rate Forecast - GBP/USD Lowers, Yellen Avoids Hawkish Tones

August 25, 2014 - Written by Frank Davies

STORY LINK Pound to Dollar Exchange Rate Forecast - GBP/USD Lowers, Yellen Avoids Hawkish Tones

The Pound to Dollar (GBP/USD) exchange rate saw fluctuation last week, but ultimately the US currency has managed to trade up against Sterling and remains strong in future forecasts.

Friday saw the highly influential Jackson Hole meeting which gathered bank leaders from around the world to discuss monetary policy and economic health.

The relevant FX levels for the three key currency pairs are:

- The dollar to australian dollar exchange rate is -0.17 per cent lower at 1.07599.
- The dollar to euro exchange rate is -0.17 per cent lower at 0.75707.
- The dollar to pound exchange rate is -0.07 per cent lower at 0.60313.

Chairwoman for the Federal Reserve Janet Yellen spoke at the Jackson Hole symposium and lived up to predictions of her statement being ‘largely inconsequential’. Economist Rob Carnell stated: ‘Fed Chair, Janet Yellen, skirted around the issue of future monetary policy by noting that whilst there were a number of factors that might mean the labour market was less of a threat to inflation than in previous business cycles equally there were factors that might make it more so. Whilst clearly Yellen gives more weight to the former arguments, she also acknowledged that the labour market had made improvements.’

Yellen has proved more hawkish of late, with statements about rate hikes possibly moving quicker than first thought. However, some were hoping for a radical statement from Yellen, that may have indicated a shift in monetary policy; despite this, the Fed Chairwoman remained cautious that there still needs to be a stronger sustainability in the labour markets before the prospect of interest rate hikes appeared imminent. Yellen appears to have stated that the US recovery has further to go, and that it was impossible to judge on one aspect. Yellen stated: ‘While these assessments have always been imprecise and subject to revision, the task has become especially challenging in the aftermath of the Great Recession.’ Yellen further described the recession as having ‘nearly unprecedented’ depth.

The only hint of interest rate hikes to come to light so far is Yellen’s concern to encourage unemployment rates lower, whilst balancing this against the management of an unfavourable rise in inflation levels. Yellen suggested the balance is fine, and the Federal Reserve will face a tricky decision as to when the interest rates will eventually increase. Yellen posed: ‘So, what is a monetary policymaker to do?’

Yellen was also greeted at the event by a line of green t-shirt clad individuals which wore the slogan ‘What Recovery?’ who were part of a group of protesters which believe the stimulus measures in place should be maintained. One of the group Reuben Eckles commented: ‘The Federal Reserve decides how many of us will remain unemployed and whether our wages will go up or stay low. They need to hear voices from everyday people.’

Pound Sterling Unable to Gain From Domestic Data in Quiet Week Lays Ahead

The Pound Sterling (GBP) conversely has seen a poor week of ups and downs; the Bank of England released meeting minutes showing the first vote that wasn’t unanimous by the board regarding the interest rate hike policies which caused excitement amongst investors. Conversely the UK produced a basket of weak figures which pushed down Sterling in its exchange rates against other majors.

The Pound traded lower ahead of the Federal Reserve Chairwoman’s speech on Friday; however, with investors expecting a more hawkish tone from Yellen, the Pound may not be set to shed as much value as some had forecast.

Expert in the field Adam Cole stated: ‘Our expectation is that Yellen will speak to a similar line that she’s had recently, which would put her toward the dovish end of the spectrum. We might expect the Dollar to soften slightly after her speech and that would include gaining against Sterling.’

Forecasts against the US Dollar and Euro this week:

The UK will only see the publication of Consumer Confidence data next Friday to influence the Pound, limiting the amount Sterling can gain in its exchange rates. The US Dollar however is likely to fluctuate from a wealthy week of data releases which will ultimately affect the USD/GBP exchange rate.

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