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Pound Sterling Gains Forecast vs Weaker US Dollar, Losses vs AUD, NZD, CAD This Session

March 17, 2016 - Written by David Woodsmith

The appeal of the Pound has shot up considerably today, thanks to investors disregarding an earlier bulletin from the Bank of England (BoE) about UK-Chinese trade and UK Referendum volatility.

Pound Sterling has capitalised on today's Bank of England (BoE) minutes, which granted great relief when they passed over a possible interest rate cut in the future.

USD Exchange Rates Continue to Struggle following Fed Policy Announcement

The fall-out from last night’s US Federal Reserve monetary policy announcement has triggered major movement in the global currency markets, with the main loser being the US Dollar (currency : USD).

The Buck shipped support against the other major tenders following the Fed’s decidedly downbeat observation that, ‘information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft.'

The Pound Sterling US Dollar exchange rate had jumped to 1.4301 GBP USD a short time ago, as investors priced in a considerable likelihood that US interest rates will be remaining at their current level of 0.50% into next year.

The pessimistic picture painted by the Fed means that futures markets now predict that the most probable level of US rates at year end is 0.75%.

This implied action was informed by the Fed’s assertion last night that it, ‘expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.’ As a result markets have been inclined to sell out of the US Dollar in the short term, with the prospect of slower monetary tightening limiting the appeal of the currency.

Reduced Expectations of Fed Tightening Supported Commodity Dollars Yesterday

The reduced expectations of a tightening of policy Stateside during 2016 has had the additional effect of pushing share markets and the Commodity Dollars higher.

The Pound has recorded significant losses against the Australian Dollar (currency : AUD), New Zealand Dollar (currency : NZD) and Canadian Dollar (currency : NZD) so far today.

These losses are likely to increase if US equities markets open higher this afternoon.
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