Dovish Fed Comments Don't Alter Pound US Dollar Exchange Rate Downtrend

Modified: Tuesday, 11 October 2016 15:35 BST - Written by Minesh Chaudhari

STORY LINK Dovish Fed Comments Don't Alter Pound US Dollar Exchange Rate Downtrend

Hard Brexit Fears Continue to Weigh on Pound Sterling US Dollar (GBP USD) Demand

Investors have continued to sell out of Pound Sterling (GBP) exchange rates on Tuesday, with markets seeing little reason to support the softened currency at this juncture.

Although the BRC Like-For-Like Sales results for September showed a strong rebound from -0.9% to 0.4% on the year, this was not enough to encourage the Pound to recover.

Worries over the prospect of a hard Brexit were not eased by the news that Russia’s VTB Bank will be scaling down its plans for its London office, the first major City casualty following the referendum result.

Comments from new Bank of England (BoE) Monetary Policy Committee (MPC) member Michael Saunders did not do anything to boost GBP exchange rates either, with the assertion that the BoE is not out of policy ammunition offering little cause for comfort.

US Dollar Strengthened as Markets Price in Lower Likelihood of Trump Presidency

The appeal of the US Dollar (USD), meanwhile, has continued to improve as the initial negative impact of September’s disappointing Non-Farm Payrolls report fades further.

In the wake of the second presidential debate markets have reduced the odds of a Donald Trump victory, an outcome that had been worrying investors and weighing on the ‘Greenback’.


Although Chicago Federal Reserve President Charles Evans indicated a belief that there is no urgency in raising interest rates, something that suggests he may not vote for a December rate hike, this did not boost the Pound to US Dollar (GBP/USD) exchange rate.

With investors generally confident that the Fed will shortly return to its monetary tightening cycle, and the world’s largest economy offering continued signs of robustness, the US Dollar strengthened across the board on Tuesday.

Weaker Fed Hike Odds Could Boost GBP/USD Exchange Rate

The limited amount of UK data in the coming days is unlikely to be of assistance to the ailing Pound, particularly as sentiment is set to remain distinctly focused on political developments and Brexit rhetoric.

Even so, as Adam Cole, research analyst at RBC Capital Markets, noted:

‘With US markets now pricing a high probability of a Fed hike before year-end and UK economic data holding up well (our UK economic surprise index is at +25), we expect GBP/USD to consolidate around current levels in the remainder of the year.’

Should Fed Chair Janet Yellen fail to adopt a particularly hawkish outlook in comments at the Boston Fed Conference on Friday the GBP/USD exchange rate could regain some ground, with speculation over Fed action likely to prompt further ‘Greenback’ volatility.

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