Pound Dollar Exchange Rate (GBP USD) Gains Following FOMC Policy Decision

Modified: Thursday, 31 January 2013 08:03 BST - Written by John Cameron

STORY LINK Pound Dollar Exchange Rate (GBP USD) Gains Following FOMC Policy Decision

Currency market participants’ focus remained firmly on the Pound Sterling during last week’s session, as comments from UK policymakers, poor British GDP figures and continued speculation regarding a potential credit downgrade dominated the headlines.

However, the US Dollar has knocked the Pound off its perch during this week’s session. Monday’s positive US Durable Goods Orders data pales in significance compared to yesterday’s worryingly weak American releases. The US morning session brought the publication of a dire set of domestic GDP growth data which revealed a surprise contraction in the US economy in the final three months of 2012. The mood of gloom surrounding the world’s premier economy was added to late yesterday, when the Federal Reserve FOMC announced its policy decision and released its latest policy statement.

As anticipated, the US central bank opted to maintain its interest rate in a band between 0.00 and 0.25%. Some analysts had suggested that the Fed might look to extend its Quantitative Easing policy in an attempt to counter the apparent economic slowdown in the States. In the end, Fed Chairman Ben Bernanke announced that there will be no immediate increase to QE, but that his Bank will maintain its ultra-loose monetary policy until the overall rate of US unemployment drops below 6.5% or inflation heads above 2.5%. There is no sign of either event taking place any time soon.

No further QE spelled good news for the US Dollar. Although the GBP USD exchange rate broke as high as 1.5825 overnight, the Fed’s failure to extend QE and yesterday’s grim assessment of the US economy which its accompanying statement contained, should lead to significant safe-haven support for the Greenback today.

If institutional investors do steer clear of risk today, then the GBP AUD exchange rate could make further gains. The GBP NZD exchange rate could also claw back some of the losses which it has incurred in the early part of 2013, in spite of the Reserve Bank of New Zealand’s overnight decision not to trim its key lending rate.

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