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GBP USD Exchange Rate Drops as Yellen Comments Improve Chances of Fed Rate Hike

November 18, 2016 - Written by Toni Johnson

The GBP USD exchange rate fell to a new weekly-low today as comments from Federal Reserve Chair Janet Yellen strengthened the US Dollar (USD).

Pound US Dollar (GBP USD) Slumps as Rate Hike Appears Certain



The Pound (GBP) slid against the US Dollar overnight as investors reacted positivity to comments from Yellen in her meeting with congress as she said;

‘Holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.’

The remarks helped to further increase market bets that the Fed will seek to raise interest rates in December, with investors now almost certain of a rate hike by the end of year after already pricing in a 90% chance earlier in the week.

The ‘Greenback’ was also strengthened by forecasts for future rate increases, with Michael Darda from MKM Partners commenting that ‘the coast is clear for multiple rate hikes in 2017’, although similar remarks were made last year, with markets predicating that 2016 would see multiple rate rises which never materialised.

Impressive British Retail Sales Fail to Alleviate Pressure on Pound Sterling (GBP) Exchange Rates



Despite the release of some impressive retail sales figures yesterday, GBP EUR only briefly advanced and quickly fell again in the afternoon.

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British retail sales surged to a 14-year high of 7.4% in October, up from 4.2% the previous month and a notable improvement on forecasts that it would rise to 5.3%. The unexpected rise in sales is largely being attributed to the colder weather and Halloween sales, with internet spending posting its strongest growth in five years, spiking by almost 27%.

While this initially helped to alleviate market worries that the UK economy was suffering post-'Brexit', it was only able to ease the uncertainty that surrounds the UK’s split from the EU for a short time, and markets quickly returned to fearing what far-reaching impact 'Brexit' is likely to have on Britain.

GBP USD Exchange Rate Forecast: Pound May Slump Next Week if UK GDP Falls as Predicted



The GBP USD exchange rate is unlikely to see any notable advances for the remainder of the week with the UK not scheduled to release any more data, although the Pound may receive a slight boost if the October US leading indicator report drops from 0.2% to 0.1% as predicted.

Looking to next week the most notable UK ecostat will be Friday’s British GDP data, which is likely to dent Sterling if forecasts are correct and it drops from 2.3% to 2.1%, however if it managed to defy expectations and continues its recent run of gains then the Pound may be strengthened.

Meanwhile the US is set to release a slew of data next Wednesday, including durable goods orders which could give an additional boost to the US Dollar if it rises from -0.3% to 0.8% as predicted.
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