March 20, 2017 - Written by Ben Hughes
STORY LINK GBP USD Exchange Rate Rises on BoE Rate Hike Speculation
The British Pound to US Dollar exchange rate surged on Tuesday as Britain’s February inflation stats came in well above expectations.
Dovish comments from Bank of England (BoE) Governor Mark Carney indicated that the bank will overlook a single point of better-than-expected data. Despite this, markets hopes for a tighter outlook from the BoE continued to increase.
[Previously updated 20/03/2017]
The GBP USD exchange rate struck a three-week high this morning as speculation that the Bank of England will raise interest rates drove Sterling higher.
Pound US Dollar (GBP USD) Buoyed by Rate Hike Predictions
The Pound US Dollar (GBP USD) exchange rate strengthened early on Monday as markets speculated on the possibility of the BoE raising interest rates in the foreseeable future after a member of the Monetary Policy Committee (MPC) voted for a rate hike last week.
Outgoing BoE policymaker Kristin Forbes -a known hawk- broke ranks last week as she voted 1-8 to raise UK interest rates on Thursday following impressive employment figures earlier in the week that showed the UK jobless rate fell to its lowest levels since 1975.
Forbes also argued that the bank needed to tighten monetary policy in order to combat the accelerated pace of inflation, with the latest Consumer Price Index expected to report that inflation surged again in February.
Ipek Ozkardeskaya, senior market analyst at London Capital Group, said;
‘The UK’s inflation data is due on Tuesday and could restate the rising inflationary pressures in the UK. After the MPC delivered an unexpectedly hawkish stance at last week’s monetary policy meeting, a solid inflation read could easily boost the BoE hawks, encouraging a further appreciation in the Pound across the board.’
However many members of the Bank may remain reluctant to alter its current policies in the face of Brexit uncertainty, with BoE Governor Mark Carney wishing to leave his policy options flexible ahead of any challenges that may arise.
US Dollar Falters as Markets Remain Disappointed by Neutral Fed Outlook
The US Dollar continued to suffer at the start of this week’s trading session as markets remain downbeat following the Federal Reserve’s policy meeting last week.
While the bank voted to raise rates, economists had hoped that the early start to monetary tightening this year would prompt the Fed to up the number of rate hikes it expected to implement in 2017.
However Fed Chair Janet Yellen disappointed investors as she told the press in her post-meeting statement that the Bank would remain on track to implement a total of three rate hikes this year as initially predicted.
GBP USD Exchange Rate Forecast: UK CPI Data Ahead
The GBP USD exchange rate may rally further on Tuesday following the release of the UK’s CPI data as it is expected to report that inflation surged from 1.8% to 2.1% in February, pushing it over the Band of England’s targeted rate of 2%.
Meanwhile movement in the US Dollar will likely be tied to the tone of Chicago Fed President Charles Evans’ speech later this evening as a suggestion that the Fed policymaker might seek more than two additional rate hikes this year is likely to strengthen the ‘Greenback’.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.24 and the USD GBP exchange rate was trending around 0.80.
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: Dollar Pound Forecasts