US Dollar to Pound Sterling Exchange Rate Weakens as September Fed Meet Approaches

Modified: Monday, 19 September 2016 16:05 BST - Written by Toni Johnson

STORY LINK US Dollar to Pound Sterling Exchange Rate Weakens as September Fed Meet Approaches

Mixed US Data Weighed on USD/GBP Exchange Rate Outlook

Given the persistently mixed nature of recent US data investors have been inclined to dial back their expectations for this week’s Federal Reserve policy decision.

This has seen the US Dollar (USD) trending lower against many of its rivals at the start of the week, particularly as the appeal of higher-risk currencies has picked back up and removed any additional support from safe-haven demand.

Even though September’s NAHB Housing Market Index surprised to the upside, strengthening from 59 to 65, this was not considered sufficient reason for investors to pile back into the weaker ‘Greenback’ on Monday.

Pound Sterling (GBP) Exchange Rate Gains Despite Weak UK Business Confidence

While Lloyds Bank revealed that their survey of UK business confidence had revealed a four-year low this did not particularly weigh on the buoyant Pound Sterling (GBP) on Monday.

Demand for the Pound was encouraged by the steadiness of the latest Rightmove House Price report, which showed prices recovering from a -1.2% contraction in August to climb 0.7% on the month in September.

This eased some of the concern that has been weighing on the currency and helped to diminish the impact of the ongoing uncertainty that surrounds the UK’s Brexit negotiations and departure from the EU.


As a result the US Dollar to Pound Sterling (USD/GBP) exchange rate trended sharply lower, undoing some of the gains made in recent days.

Lack of Fed Action Forecast to Dent US Dollar (USD) Exchange Rate Demand

Sentiment towards the US Dollar is likely to remain volatile as the Fed’s September rate decision approaches, despite the general impression amongst economists that the central bank will not move at this juncture.

Doubts over the chances of the Fed returning to its tightening cycle in the near future could increase further, as researchers at RBS note:

‘Despite the Fed’s best efforts to prep the markets, the December meeting is a long three months away, and it remains to be seen whether economic conditions between now and then will allow the Fed to follow through on its plan. At this time, our US strategists continue to assign no better than even odds that the Fed hikes interest rates this year.’

This could see the USD/GBP exchange rate continuing to cede ground, with any more dovish commentary from policymakers expected to have a strong detrimental impact on the appeal of the ‘Greenback’.

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