Will US Federal Reserve Interest Rate Increase Send Pound Sterling US Dollar GBP USD Exchange Rate Forecast Lower?

Published: Thursday, 17 September 2015 07:00 BST - Written by John Cameron

STORY LINK Will US Federal Reserve Interest Rate Increase Send Pound Sterling US Dollar GBP USD Exchange Rate Forecast Lower?

FOMC Interest Rate Announcement Due - Interest Rate Hike Could Send US Dollar Exchange Rate Falling

US interest rates have remained in a range close to zero per cent for the best part of a decade and economists are united in their belief that this situation cannot continue for much longer -the Fed will have to begin to tighten its monetary policy sooner rather than later and FX insiders are queueing up to forecast that today might represent day one in a fresh Fed rate hiking cycle. The US central bank’s monetary policy board convened yesterday for its latest meeting and will announce its decision on policy at 1900hrs BST this evening.

GBP/USD Exchange Rate News Now: Pound Climbs after Jobs Data, Are More Gains Ahead?

Price action in the global currency markets during the past 24hrs has suggested that the Fed will resist the temptation to increase rates this month. The Pound Sterling US Dollar exchange rate began yesterday’s European session lodged in the 1.5300s but the pair was changing hands at well above the 1.5500 GBP USD threshold by the time the New York session got underway. If investors believed a US interest rate increase was imminent, the Buck would not have endured such a sustained bout of selling pressure.

US Dollar Predictions: Will USD Conversion Rate Find Support in the Medium Term?

However, David Folkerts-Landau of Deutsche Bank went against the theory that the Fed will keep things loose for a while longer when he commented yesterday that, ‘inflation is not a problem now, but zero rates are a recipe for excess inflation down the road. The longer the wait, the higher the risks. If inflation does break out, the Fed will be forced to tighten aggressively, causing far more damage to the US and global economy than starting now.’ Folkerts-Landau’s belief that the Fed needs to pre-emptively increase rates in order to ward off persistent price rises in the US economy may help to provide support for the US Dollar (currency : USD) in the short to medium term.

Forex Predictions: USD Could Gain on GBP, EUR Exchange Rates in the Medium Term

However, Julian Jessop of Capital Economics takes a different view; he forecast yesterday that a rate hike might not prove such a boon for the Greenback after all, stating that, ‘once the dust has settled, the combination of a small hike and a relatively dovish statement may be better received than yet another delay. The latter might simply be interpreted as a sign that the Fed is more worried about the global economy.’ With futures markets still forecasting two US interest rate hikes before the turn of the year, most analysts predict US Dollar strength against the other sixteen most actively traded global currencies into the medium term.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Daily Currency Updates Doll Forecasts