Daily USD GBP Update: US Dollar Picks Up on UK Trader Uncertainties

September 14, 2017 - Written by David Woodsmith

STORY LINK Daily USD GBP Update: US Dollar Picks Up on UK Trader Uncertainties

Yesterday, the US Dollar advanced against the Pound from an opening exchange rate of 0.7524 to close in the region 0.7570.

US Dollar Update: ‘Dreamers’ Deal Provides Temporary Respite

The US Dollar has made a minor advance against the Pound today, although this is partly due to the Pound being a weak currency at the present time.

In domestic news, it has been announced that Donald Trump has managed to secure a deal with the Democrats on the issue of ‘Dreamers’.

These so-called individuals are those who have entered the US illegally while declared ‘children’, which has granted them certain protections against being deported immediately.

Trump recently announced plans to shut down the Dreamers program, but this recent deal has apparently ensured the protection of the countless affected individuals already living in the US.

Less clear has been whether the Trump-Democrat deal has included a rejection of the costly planned Mexican border wall. Democrats assert that this is the case, but White House officials have refuted this claim.

Pound Trades Down ahead of Monthly BoE Rate Meeting

Although the Pound rose to an exchange rate of 1.3327 against the US Dollar earlier this week, the pairing has since slipped to 1.3197.

This dip comes as trader uncertain grows about an imminent Bank of England (BoE) interest rate decision and policy meeting.

In the wake of UK inflation hitting 2.9% and UK wages failing to pick up, many see the BoE as having a difficult decision on its hands.

If the bank does raise interest rates then this will go some way to lowering inflation, although with UK wages low this will only worsen the situation for those repaying mortgages or with high credit debts.

Future USD GBP Forecast: High Volatility ahead on Bank of England Policy Meeting

The US Dollar is likely to be moved by this afternoon’s inflation rate figures, which are expected to show higher base inflation but falling core inflation.

Of the two data releases, the core figure is more accurate as it does not include volatile economic measures like the price of fuel.

If both readings unexpectedly rise then the US Dollar could appreciate on higher hopes of a Federal Reserve interest rate hike. On the other hand, a pair of declines might instead drag the US Dollar down on lower trader confidence.

Over in the UK, high turbulence is imminent as the Bank of England (BoE) holds its September monetary policy meeting.

Taking place at noon, the meeting is not expected to bring a change in UK interest rates. Instead, traders will be looking at BoE minutes and Mark Carney’s press conference for signs of future bank policy.

Giving an outlook on the issues faced by the BoE has been Ben Brettell, Senior Economist at Hargreaves Lansdown. Brettell has stated that;

‘The Bank of England predicts wage growth will rise to 3% next year, while inflation falls back towards the 2% target. The first part of that equation looks optimistic to me.

The only sustainable driver of real wage growth is increasing productivity – and in this respect the UK continues to lag behind its developed-world counterparts, notably the US and Germany.

Unless a solution to this productivity puzzle is found, a meaningful improvement in living standards could be some way off’.

In a similar situation, Ed Monk of Fidelity International has observed;

‘Lagging wages makes it more likely the Bank of England will look through rising inflation when it decides on interest rates this week.

Prices are rising above target, which creates the case for raising rates, but today’s wage data suggests all is still not right in the economy’.

When Governor Mark Carney gives a press conference later on, one likely question will be how the bank is responding to inflation nearly hitting 2.9%.

If Carney accepts that UK interest rates may eventually have to rise under these conditions, then the GBP/USD exchange rate could rise sharply.

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TAGS: Dollar Pound Forecasts