Gains Forecast for Pound Sterling Euro Exchange Rate GBP EUR on Federal Reserve Rhetoric

October 29, 2015 - Written by John Cameron

STORY LINK Gains Forecast for Pound Sterling Euro Exchange Rate GBP EUR on Federal Reserve Rhetoric

Forex Alert! Federal Reserve Hold Rates, GBP to USD at 1.52

On the face of it, the latest Federal Reserve monetary policy decision, which was announced yesterday evening, was a bit of a damp squib.

As per analysts’ expectations, the Fed opted to maintain its benchmark interest rate in its current band of 0.0 – 0.25% and once again only one member of the policy board - Jeffrey Lacker - voted in favour of an increase this month.

However, movement in various key global markets in the immediate aftermath of the release from the Fed suggested that the tone of the US central bank’s accompanying statement changed the outlook for American interest rates significantly.

The Fed’s comments were adjudged to be generally more hawkish regarding the state of the domestic economy and less dovish on global economic difficulties, with the removal of the suggestion that ‘global developments may restrain growth’ considered particularly noteworthy.

USD to EUR Conversion Rate at 0.91 after Improved Bets on 2015 Fed Rate Hike

Futures markets had been pricing in a relatively lowly 30% chance that the Fed would be increasing rates before the end of 2015 prior to yesterday’s statement.

However, these same futures markets saw a pronounced shift following the Fed’s comments and by the latter stages of yesterday’s US equities session, they implied a 46.5% likelihood that Fed ‘rate liftoff’ will take place this side of Christmas.

This move for futures markets was re-enforced by an instant loss of almost 20 points from Chicago’s broad-ranging S&P 500 equities index, suggesting that a tightening of monetary policy

Stateside is now considered significantly more likely in the short-term.

GBP to EUR Forecast to Strengthen on December Fed Rate Hike Speculation

Meanwhile, in the global currency markets, the world’s most liquid pairing - euro US Dollar (EUR USD) - leaked support, dropping from an intraday high of 1.1096 down to 1.0925 following the release of the Fed statement.

The relative weakening of the euro manifested itself I the form of a forward move in the Pound Sterling euro exchange rate – the leading European pair was trading just shy of the 1.4000 threshold late yesterday.

Analysts forecast that there may now be further gains to come for the Pound against the single currency.

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