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GBP USD Exchange Rate Crashes as Near-Term Fed Rate Hike Odds Rise

March 1, 2017 - Written by Frank Davies

The British Pound to US Dollar exchange rate remained near its worst levels since January on Thursday afternoon as the day’s UK construction data was not enough to make the Pound more appealing than the bullish US Dollar.

Demand for the US Dollar was also improved by Thursday afternoon’s news that the number of new US jobless claims made last week was just 223k, the lowest number of new claims since March 1973.

[Previously updated 01/02/2017]

GBP USD Losses Triggered by Sliding Confidence over Week’s UK PMIs



The Pound’s heavy losses against the US Dollar today have come from the February manufacturing PMI, which has shown a larger-than-expected slowdown from 55.9 to 54.9.

Senior Economist at Markit, Rob Dobson, offered a forecast based on the disappointing figure;

‘The big question remains as to whether robust growth can be sustained or whether it will continue to wane in the coming months. The slowdown in new order growth and a drop in backlogs of work suggests output growth may slow further. However, elevated business optimism [and] continued job creation…suggest that any easing will be only mild’.


GBP Predicted to Slide if Construction and Services PMIs Both Drop This Week



The Pound may be in for further losses against the US Dollar this week, given that two more PMIs are scheduled to be released before the weekend.

Forecasts have been for no change in Thursday’s construction PMI from 52.2, but a drop in the high-impact services score may seriously weaken the Pound on Friday.

Given how integral strong services growth is to UK economic stability, a large drop is likely to exacerbate existing concerns about how the UK economy will fare once Brexit has been completed.

US Dollar Rallies after Moderate Trump Speech and Hawkish Fed Comments



The US Dollar’s 0.5% rise against the Pound today has come from two sources – the US President and the Federal Reserve.

In the former case, Donald Trump has surprised observers by delivering an uncharacteristically restrained speech to Congress, laying out a little more economic policy without his usual bombastic and brash tone
On the other side, Fed officials have largely continued to speak optimistically about a near-term US interest rate hike, with Patrick Harker repeating that 3 rate hikes are likely in 2017.

While James Bullard has been more cautious about an imminent rate boost, fellow official John Williams has stated that a rate hike in the coming months is a ‘serious consideration’.

USD Drop Predicted if Incoming Manufacturing Stats Fall in February



Incoming US data could erode the current USD GBP gains, although residual optimism about a potential incoming rate hike could still prevent any major negative US Dollar movements.

Imminent US ecostats will focus on the ISM and Markit manufacturing PMI scores, which are expected to show a drop for the Markit score but no change from ISM.

With more Fed speeches ahead, a pair of positive results will reinforce any US Dollar support from hawkish comments, though a pair of surprise drops could negate any USD GBP advances.

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