GBP USD Outlook: Pound vs Dollar Rally Stalls on FX Exchange Rate Markets

October 9, 2014 - Written by John Cameron

STORY LINK GBP USD Outlook: Pound vs Dollar Rally Stalls on FX Exchange Rate Markets

Fed Minutes Stall US Dollar To Pound Exchange Rate (USD GBP) Rally

It’s amazing the difference two little words can make; the Pound Sterling US Dollar exchange rate GBP USD was threatening to drop back down through the psychologically key 1.6000 threshold during the middle part of yesterday’s European equities session. However, by the final stretch of the North American trading day, the pair had climbed to as high as 1.6169. The move was triggered by a sharp weakening of the Greenback following the publication of the minutes of the latest US Federal Reserve policy-setting meeting.

Two Words Send Pound Sterling to US Dollar Exchange Rate GBP/USD Higher

Fed watchers eagerly scoured the memos of the US central bank’s most recent get-together for any mention of the phrase ‘considerable time’ and they were not disappointed. The American lender of the last resort had previously asserted that it would be maintaining its interest rates at their current ultra-low levels for a ‘considerable time’ and this month’s memos confirmed that the consensus view from policymakers remained in favour of a continuation of the Fed’s ‘easy money’ stance. The Buck gave up ground as a result.

Fed Policymakers Fear US Dollar Strength

The minutes also revealed that the near-term strengthening of the US tender, which sent the Pound Sterling US Dollar exchange rate downwards from the 1.7000s into the 1.5000s within the space of two months, now threatens to cause the US economy to edge towards deflation once more. The near-term improvement for the Buck has altered America’s terms of trade with the rest of the world, making US exports less competitively priced abroad and making foreign imports into the States relatively cheaper. The outcome could see the headline measure of inflation in the States – the Consumer Price Index – drop back down towards zero once more.

US Dollar Rally Still In Tact

If evidence emerges of such a phenomenon, then expect the Fed to take steps to actively weaken their currency. The US Dollar lost support yesterday in anticipation of such an outcome. Lennon Sweeting of American broker USForex summed up the market’s reaction to the Fed minutes late yesterday, stating that,

“It kind of looks like the Fed will take any excuse not to normalize rates in the near term. What we’re seeing is consolidation and probably a brief period of stability. Overall, the bull rally on the dollar is still intact.”

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