October 14, 2016 - Written by Tim Boyer
STORY LINK Pound Sterling to US Dollar Exchange Rate Trends Narrowly ahead of Fed?s Yellen Speech
Pound Stemmed Losses Ahead of Weekend Despite Ongoing Brexit Worries
The appeal of Pound Sterling (GBP) has remained decidedly weak over the course of the week, with fresh developments in the ongoing Brexit saga prompting decided volatility for the vulnerable currency.
As Tim Riddell, research analyst at Westpac, noted:
‘GBP’s “flash crash” certainly indicated the vulnerable side for GBP. The steady decline that has followed the “flash crash” rebound underlines UK’s loose monetary policy, expanding of fiscal policy, wide trade deficits and uncertain investment intentions.’
Confidence in the robustness of the UK economy was also dented on Friday morning, as August’s construction output data disappointed to the downside to clock in at growth of just 0.2% rather than the forecast 1.5%.
However, while this offered limited cause for optimism the Pound was shored up by the latest commentary from Bank of England (BoE) policymakers.
Increased Market Risk Appetite Hampered US Dollar Ahead of Yellen Comments
Better-than-expected Chinese inflation data prompted the US Dollar (USD) to weaken, meanwhile, with the appeal of the safe-haven currency undermined by the stronger showing.
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Some measure of support for the ‘Greenback’ came in the form of September’s advanced retail sales data, which pointed towards a solid uptick in consumer spending.
This suggested that the world’s largest economy remains in a robust state, although this stronger showing was not enough to substantially dent the Pound Sterling to US Dollar (GBP/USD) exchange rate.
Investors maintained a somewhat cautious view of the US Dollar ahead of the fresh comments from Fed Chair Janet Yellen, who could give a greater clue to the likelihood of a December interest rate hike in a speech at the Boston Fed conference this evening.
Rising UK Inflation Forecast to Soften GBP/USD Exchange Rate
Should Yellen adopt a more hawkish tone on monetary policy then the US Dollar is expected to see a strong rally ahead of the weekend, even though relatively high odds of a 2016 rate hike have already been priced in.
Worries over the prospects of the UK economy and divorce proceedings with the EU are likely to continue weighing on the Pound for the foreseeable future, limiting the outlook of the GBP/USD exchange rate.
Volatility is likely next week in response to the latest UK and US Consumer Price Index data, with signs of rising inflation in the UK likely to diminish the appeal of Sterling further.
Given the recent indication from Bank of England (BoE) Governor Mark Carney that policymakers are less concerned with the prospect of inflation overshooting its 2% target it seems likely that the BoE will leave monetary policy loose for longer.
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TAGS: Daily Currency Updates Dollar Pound Forecasts Pound Sterli Forecasts