Pound Dollar Exchange Rate (GBP/USD) Forecast To Tumble If Fed Trims QE, GBP EUR Steady

Modified: Tuesday, 17 September 2013 21:16 BST - Written by Minesh Chaudhari

STORY LINK Pound Dollar Exchange Rate (GBP/USD) Forecast To Tumble If Fed Trims QE, GBP EUR Steady

The GBP USD exchange rate could tumble tonight if the Fed announces a cut to Quantitative Easing. The Pound is forecast to suffer broad selling pressure if this morning’s BoE minutes talk down the UK’s economic prospects.

The Pound to Euro exchange rate (GBP/EUR) is currently trading down by 0.11% at 1.1908 GBP/EUR. The Euro to Pound exchange rate is currently trading at 0.8398 EUR/GBP.

If institutional investors are expecting today’s US Federal Reserve policy announcement to yield news of a reduction to the current $85bn per month Quantitative Easing programme in the States, then they are doing a very good job of hiding it. American share indices once again climbed on the day yesterday, sending the broad-ranging S&P 500 index up to within touching distance of Monday’s record high of 1709.

However, the current ‘risk on’ trading environment, which many analysts have suggested smacks of the ‘irrational exuberance’ which former Fed Chairman Alan Greenspan spoke of, and the technical indicators are backing this up. Yesterday’s session saw the widely-used stochastic momentum indicator give a strong signal that the S&P is now overbought. If tonight’s Fed announcement sees QE trimmed by a significant amount, then look for global stocks to tumble and the US Dollar to enjoy a bout of strong support. In such a circumstance, it would be easy for the GBP USD exchange rate to retrace back down to the psychologically key 1.5000 level where it was trading only a few weeks ago.

Elsewhere, central bank-watchers will be keeping an eagle eye on this morning’s Bank of England minutes. The Pound has climbed against the euro since Mark Carney took over at the Old Lady of Threadneedle Street on 1st July, despite initial losses following a Sterling-negative statement which accompanied the BoE’s policy announcement a few days later. At the time, analysts felt that Carney was keen to cause a weakening of the Pound in order to boost domestic industry. If today’s minutes re-ignite these fears, then look for a down shift for the GBP EUR exchange rate towards the 1.1700 level.

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