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Federal Reserve Holds Rate ? GBP USD Exchange Rate Forecast Improves

July 28, 2016 - Written by Minesh Chaudhari

Federal Reserve Holds Interest Rates, GBP USD Exchange Rate Firms



As anticipated, the US Federal Reserve decided to maintain the benchmark cost of borrowing Stateside at its current level of 0.50%. However, the tone of the policy statement which accompanied the announcement was generally adjudged to be relatively hawkish – a factor which is likely to help the US Dollar (currency : USD) moving forward. Although the full Fed minutes of this week’s meeting will not be published until well into next month, yesterday’s shortened version struck a decidedly positive tone, particularly regarding America’s jobs market, observing that,

‘the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months.’


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The statement went on to assert that,

‘the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee 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.’


The suggestion by US policymakers that a rate hike is still at the forefront of their minds led some analysts to suggest that the Fed is planning a ‘hawkish hold’ at its September policy meeting followed by a December rate hike, repeating the pattern of last year.

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However, one factor which could potentially derail this plan is the decision by British voters last month to exit the European Union. Last night’s Fed policy statement pointedly failed to mention Brexit, but any suggestion over coming months that the ‘Leave’ decision is beginning to trigger a global slowdown could cause US rates to remain lower for longer.

The currency market’s instant verdict on the Fed’s decision and statement saw the Pound US Dollar exchange rate edge higher, with the pair trading towards the 1.3200 GBP USD level in the hour after the release.
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