GBP/USD Trending Narrowly ahead of FOMC Meeting Minutes

May 24, 2017 - Written by Toni Johnson

STORY LINK GBP/USD Trending Narrowly ahead of FOMC Meeting Minutes

The Pound Sterling to US Dollar exchange rate is currently stuck around opening levels as markets await the key US Federal Open Market Committee (FOMC) meeting minutes.

The accounts of the May 3rd policy meeting will give an indication into the outlook of policymakers on the US economy and monetary policy.

Should FOMC members exhibit a hawkish view, this will likely raise the odds of an interest rate hike in June, upon which markets already place odds of 83.1%.

However, if the doves are in the majority, this could lead traders to price-in lower odds of monetary tightening, prompting a US Dollar sell-off.

There has been no UK data released today, giving the Pound little to trade on.

GBP/USD exchange rates are therefore trading around opening levels of 1.2951, with USD/GBP trending around 0.7721.

US rate hike bets have not been helped by the recent Federal Reserve speeches, thanks to the contradictory nature of remarks made by Neel Kashkari and Patrick Harker.

Kaskari claimed he was not entirely certain that the US was at full employment yet, while observing that core inflation was weakening.

‘That is concerning to me,’ he commented.

Meanwhile, Patrick Harker stated that a rate hike in June was a ‘distinct possibility’, although he too raised the issue of inflation, claiming that another downside surprise to inflation would worry him ‘a little’ and potentially delay policy tightening.

NAB believes that comments on the inflation outlook will be the most influential upon rate hike odds, stating;

‘A June hike still looks like the base case scenario, but if there are any signs of doubts over the expected upward path on inflation this view may be challenged.’

‘In addition, NAB thinks that any commentary surrounding the Fed Balance sheet to be limited to the Committee’s preference for a passive strategy without any details on timing or magnitude.’

The Federal Reserve had previously surprised markets by suggesting that it could begin to unwind some of its enormous balance sheet earlier than expected.

The central bank currently holds around US$4.5 trillion of assets after its enormous quantitative easing programme following the financial crisis and could begin to shrink this sooner than markets had anticipated.

Assuming market attention is solely focussed on the fallout from the meeting minutes tomorrow, the second estimate of UK first-quarter GDP and the US April advance goods trade balance figures could cause some movement for the GBP/USD exchange rate.

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TAGS: Pound Dollar Forecasts