British Pound Sterling to US Dollar (GBP-USD) Exchange Rate Rebound Forecast

January 29, 2016 - Written by John Cameron

STORY LINK British Pound Sterling to US Dollar (GBP-USD) Exchange Rate Rebound Forecast

Mixed Signals from Fed Policymakers Provoked US Dollar Exchange Rate Fluctuations

Wednesday evening’s US Federal Reserve monetary policy announcement saw America’s central bank leave its benchmark cost of borrowing at its current level of 0.50%, as had widely been expected by analysts.

However, the accompanying policy announcement from the Fed struck a decidedly mixed tone and the upshot provoked pronounced price action for the US Dollar (currency : USD) and other major currencies during yesterday’s session attested to this.

GBP/USD Exchange Rate was Close to a 6 1/2 Year Low following Federal Reserve Comments

The Fed’s comments opened up brightly enough, with the release observing that, ‘information received since the Federal Open Market Committee (FOMC) met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further.’

The statement continued this positive tone in suggesting that the economic slack which has been prevalent in the US economy is beginning to be used up, noting that, ‘a range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources.’

The immediate effect of these go-ahead comments regarding America’s real economy saw the Pound Sterling US Dollar exchange rate settle below the 1.4250 GBP USD level – comfortably within 2.5c of its 6 ½ year low.

However, support for the Buck waned as yesterday’s session drew on thanks to the Fed’s suggestion that it will struggle to reflate the US economy back towards its target level of 2.0% inflation.

The statement noted that, ‘inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.’

GBP/USD Exchange Rate Reached 2-Week High Yesterday

This downbeat message was accentuated by the assertion that the Fed’s, ‘Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.’

Fears regarding US inflation (or the lack of it), and problems with the global economy, led the Greenback lower during yesterday’s trade, sending the GBP USD exchange rate up to a fresh 2-week high at close to the 1.4400 threshold, with GBP advancing on the lack of worse news from the GDP figures.

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TAGS: American Dollar Forecasts Pound Dollar Forecasts Pound Sterling Forecasts