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Pound Sterling (GBP) to US Dollar (USD) Fluctuates Ahead of Fed?s December Meeting

December 14, 2016 - Written by John Cameron

The Pound to US Dollar exchange rate extended its lows on Thursday afternoon as the Bank of England’s final meeting of 2016 didn’t give GBP traders anything to get excited about.

The bank indicated that even if inflation were to continue increasing in 2017, it would not be enough to cause them to tighten Britain’s monetary policy. This bearish outlook for Britain was a stark contrast compared to the Fed’s hawkishness this week.

[Previously updated 15/12/2016]

The GBP/USD exchange rate did fall following the latest Federal Reserve policy announcements, despite the revealed 0.25% hike having been firmly priced-in to the US Dollar.

USD was boosted thanks to an increasingly hawkish outlook for 2017 monetary policy offered by US policymakers, indicating three rate hikes could take place in the coming months.

[Previously updated 15/12/2016]

The Pound to US Dollar exchange rate fluctuated within a relatively wide range throughout Wednesday’s European session as investors across the foreign exchange market prepared for an expected US interest rate hike from the Fed during the American session.

GBP/USD remained comfortably above the week’s opening level of 1.2571 on Wednesday afternoon and briefly touched upon the level of 1.27. However, it struggled to hold its ground in volatile pre-Fed meeting trade.

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Pound (GBP) Bolstered by Brexit Hopes despite Mixed UK Employment Results



Wednesday’s session saw the Pound performing limply earlier in the day, as concerns about the 2017 outlook for UK inflation and jobs weighed the currency down.

According to Britain’s employment results from the three months through October, the UK job market shrank by -6k unexpectedly. This was the first job market shrinkage all year and indicated to analysts that the previous strength seen in the job market was over.

This hindered demand for the Pound throughout the day and prevented it from capitalising on the afternoon’s comments from UK Brexit Secretary David Davis.

Davis stated that the Brexit plan would likely be published in February, and hinted that the government was aiming for a smooth and potentially transitional Brexit process.

US Dollar (USD) Sees Corrective Trade Before Fed Meets for Policy Decision



The US Dollar saw mixed movement on Wednesday as traders throughout the global forex market adjusted their positions ahead of the American session’s highly anticipated Federal Reserve meeting.

A US interest rate hike from the Fed is so widely expected that it is thought to be already priced into USD trade. This is why the US Dollar has struggled to hold its best levels this week, as traders instead shift on bets of what the Fed’s tone looking into 2017 may be.

The day’s US ecostats were generally disappointing, which also weighed on USD demand as the Fed meeting approached. November’s advance retail sales results slowed to 0.1% despite being expected to print at 0.3%. Industrial production also worsened in November, contracting by -0.4%.

GBP/USD Forecast: Fed Decision in Focus in Late-Wednesday and Thursday Trade



Movement in the Pound to US Dollar exchange rate for the remainder of the week will heavily depend on the tone taken by Fed officials during Wednesday’s Federal Open Market Committee (FOMC) meeting.

Markets widely anticipate a US interest rate hike, meaning this becoming a reality will not be enough to send the US Dollar significantly higher. The focus point will be on what stance the Fed takes on interest rate outlooks going forward.

Will the Fed aim to match President-elect Trump’s reflationary fiscal policy by hinting at regular 2017 rate hikes, or will officials take a more cautious stance amid the uncertainty in Trump’s policy proposals?

A more bullish Fed will of course lead to a more bullish US Dollar, which would see GBP/USD plunge towards the end of the week. A vague or cautious Fed is more likely to disappoint USD traders.

While this is likely to set the tone for GBP/USD trade for the remainder of the week, the Pound is likely to be influenced on Thursday by the Bank of England’s (BoE) own policy meeting.

The BoE is unlikely to make any changes towards monetary policy, but if it hints at tighter policy in the future the Pound will soar towards the end of the week.

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