Lasting Fed Optimism Pushes GBP USD to One-Month Low

December 20, 2016 - Written by Frank Davies

STORY LINK Lasting Fed Optimism Pushes GBP USD to One-Month Low

The Pound to US Dollar exchange rate slumped on Monday and extended losses as the week continued. A lack of strong new UK ecostats meant there was little reason for investors to buy into the British currency this week and the Fed-strengthened USD was in fashion.

GBP/USD began the week at the level of 1.2490 but dived to 1.23 – its lowest level in a month.

Pound (GBP) Lacks Movement Factors and Falls Limp

The Pound hasn’t been very popular amongst traders so far this week as there really hasn’t been a reason to buy into the currency to begin with.

Last week’s Bank of England (BoE) outlook weighed on the underlying trend of GBP, as investors were disappointed that UK interest rates would remain at current lows even if UK inflation continued to increase.

This week’s UK data has also been too low-influence to move GBP interest rates. Tuesday’s reported sales figures from CBI beat expectations, but Sterling continued to be weighed down by concerns about Britain maintaining access to the EU’s single market after the Brexit process.

US Dollar (USD) Kept Afloat by Ongoing Fed Confidence

Despite the perceived uncertainty of the upcoming Trump Presidency, markets continued to trade the US Dollar optimistically this week in reaction to last week’s hawkish outlook from the Federal Reserve.

In its last meeting of 2016, the Fed hikes US interest rates to 0.75%. Following the meeting, officials also indicated that the Fed foresaw as many as three rate hikes throughout 2017 if the US economy continued to perform strongly.

This, as well as the Trump administration’s intention to stimulate inflation in the US has left investors highly bullish on the US Dollar’s 2017 outlook overall. As a result, traders continue to pile into USD despite this week’s mixed US ecostats thus far.

Monday saw the publication of some disappointing US services and composite stats from Markit, but these were not enough to dissuade traders from buying the ‘Greenback’.

GBP/USD Forecast: Slews of US Data for the Rest of the Week

US Dollar bulls are enjoying the holiday season, looking for more reasons to buy into the currency in excitement for 2017’s potential Fed rate hike cycle. Because of this, investors have been brushing over underwhelming mid-influence stats and buying up more USD on each optimistic ecostat instead.

The coming days could cause EUR/USD to fall even closer towards parity if US data impresses and gives the ‘Greenback’ Dollar additional boosts of support towards the end of the year.

Ecostats due for publication on Wednesday include existing home sales, and Thursday will see a slew of influential US stats including Q3 growth, November durable goods orders and personal spending.

Comparatively, there’s little upside potential for the Euro. Wednesday’s Eurozone consumer confidence results may give the shared currency a little support;.

However, the lasting strength of Fed bullishness and the overall bullish trends of the US Dollar means the Euro to US Dollar exchange rate is unlikely to advance this week and will instead trickle closer towards the psychological resistance above parity.

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