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Pound Sterling to US Dollar (GBP/USD) Exchange Rate: Investors Flock to Safe-Havens before Central Bank Decisions

March 15, 2016 - Written by John Cameron

The Pound Sterling to US Dollar exchange rate has jumped up today, thanks to the Bank of England (BoE) not including a mention of interest rate cuts in its most recent minutes.

The Pound Sterling to US Dollar (GBP/USD) exchange rate dropped heavily today as investors left the Pound for safer territory as upcoming UK economic news seems set to disappoint.

Pound Sterling (GBP) Experiences Biggest Drop Against US Dollar (USD) in Almost Three Weeks As Economic Fears Build



Seemingly ending the gradual climb against the American giant recorded since the end of February, the Pound (GBP) has depreciated considerably in the GBP/USD pairing since yesterday. The pair had dropped -0.8% at the time of writing, to trend at 1.4165. While Sterling’s descent seems to have slowed, the currency is well down on this morning’s opening levels of 1.4280

The Pound’s bearish behaviour since the opening of the week is widely thought to be the result of investors bracing themselves for financial tightening at this week’s budget, and any implications about the future of UK interest-rates from the Bank of England (BoE)’s decision on Thursday.

Risks and pessimism pile up for the Pound this week, influencing investors to continue to stay away from the weakened currency until more concrete data on Britain’s future is available.

Chancellor of the Exchequer George Osborne’s budget discussions and tomorrow’s British unemployment figures, followed by the BoE’s interest rate and asset purchase target decisions on Thursday, are the big events for ‘Cable’ this week.
Wednesday’s Federal Open Market Committee (FOMC) announcement is also likely to be influential.

Investors partaking in profit-taking from Friday’s near-month high in the GBP/USD exchange rate is also thought to be a factor in the Pound’s depreciation this week
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Low Risk-Sentiment in Addition to Optimistic US Data Brings Appeal to the US Dollar (USD)



The risky commodity bloc suffered a blow this week as Iran’s Oil Minister Bijan Zanganeh confirmed suspicions that he was not ready to co-operate with the proposed curb on oil production. As Iran’s part in the oil trade has only recently been allowed to grow, Zanganeh is eager to ramp oil production up to 4 million barrels per day before he even considers the deal intended to hike up oil prices.

Many other major oil producing countries are not expected to agree to the deal until all major parties are accounted for, not eager to lessen production while other countries are still full steam ahead. Oil prices dropped once more as a result, causing large problems in oil commodity nations such as Canada.

Weakness in the trade of such an influential export has hurt the previously healthy risk-sentiment of many investors, resulting in their turning towards safe-haven currencies like the US Dollar.

Optimistic US data has also had a positive influence on the ‘Greenback’, with retail sales data from earlier today showing a smaller decline in consumer spending than expected in February. Business inventory data from January also reported growth of 0.1%, up from the previous and forecast figures of 0%.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: Dollar Strength Likely to Continue



While the Pound may seem due for a rise against its western rival, upcoming data seems likely to give continued favour to the US Dollar. The 2016 UK Budget seems unlikely to inspire growth in Sterling if expectations that Osborne will rein in spending to reach Britain’s deficit target prove true.

Analysts also predict that the chance of the Bank of England cutting interest rates sometime this year has risen to 23%, 10% up from last month’s estimates. Thursday’s interest rate decision announcement is likely to offer more insight for investors about what the central bank has in mind for the future of Britain’s economic policy.

The EU referendum getting closer is also likely to weigh on any potential Pound recovery, as analysts predict a ‘Brexit’ could land the UK in a recession if it goes ahead.

Positive growth consensus for Britain in upcoming data could prompt an uptrend in the Pound, however, and UK employment data due for release has the potential to be influential.

The US also has a large amount of important data due for release throughout tomorrow, including February’s CPI information and the Federal Reserve’s own rate decision.

The BoE’s decision is forecast to be slightly dovish, the Fed’s decision is expected to reflect the US economy’s currently gradual-but-definite growth. While the growth may not be as bullish as some had hoped, many analysts are still predicting that interest rates in the US will be hiked again this year, a sentiment that may become clearer tomorrow evening.

Some predict, however, that the Pound’s current weak-streak is unable to continue for much longer and could bounce-back. This is especially evident as the GBP/USD pair experienced its lowest point since May 2009 at the end of February.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4165 while the US Dollar to Pound Sterling (USD/GBP) exchange rate trends in the region of 0.7059.
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