Pound Dollar Exchange Rate Forecast Falls on US Federal Reserve Comments

June 16, 2016 - Written by Ben Hughes

STORY LINK Pound Dollar Exchange Rate Forecast Falls on US Federal Reserve Comments

Federal Open Market Committee (FOMC) Keep Policy Unchanged

As expected, yesterday evening’s US Federal Reserve monetary policy announcement yielded ‘no change’ to the benchmark interest rate Stateside. However, the tone of the rhetoric contained in the Fed’s accompanying policy statement and Chair Janet Yellen’s press conference which followed triggered pronounced movement for the US Dollar (currency : USD) against both the Pound Sterling (currency : GBP) and the euro (currency : EUR).

The Fed’s statement began by acknowledging the highly disappointing domestic job creation figures published earlier this month, stating that, ‘information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished.’

Fed Chairwoman Janet Yellen Acknowledged Growth in Household Spending and Called for Gradual Rate Increases

However, the missive soon became more positive, observing that, ‘growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 per cent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.’

Chair Janet Yellen alluded to the recent increase in real wages experienced by US workers during her press conference which followed the announcement and went on to attribute this partly to the continuation of global oil prices at relatively low levels.

In spite of the Fed’s assertion that its policy, ‘committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate, ‘ the US Dollar still managed to record gains against Sterling. The implication of this move is that a US interest rate hike is on its way and this was backed up by the sharp drop in US share markets in the wake of the policy release.

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TAGS: American Dollar Forecasts Pound Dollar Forecasts Pound Sterling Forecasts