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GBP to USD Exchange Rate Fluctuates as Investors Speculate on Next Possible Fed Chair

October 24, 2017 - Written by Minesh Chaudhari

Market jitters about the Brexit process have eased in recent sessions, but now concerns about the Bank of England (BoE) policy outlook are weighing on the British Pound to US Dollar exchange rate outlook instead. The US Dollar has been unable to capitalise due to Federal Reserve Chair uncertainty.

Volatility in both currencies has caused GBP/USD to fluctuate within a relatively tight range between 1.3162 and 1.3227 since opening at the level of 1.3185 this week.

GBP Weakened by Bank of England (BoE) Deputy’s Comments


After seeing decent support on Monday thanks to leftover bullishness about progress in Brexit negotiations, the Pound saw weaker trade on Tuesday.

Investors reacted to cautious comments from Bank of England (BoE) Deputy Governor Sir Jon Cunliffe.

Cunliffe warned markets from being too hawkish, indicating that the chance of a November interest rate hike was still an ‘open question’.

While many BoE policymakers have indicated that it may be appropriate to hike UK interest rates within the coming months to stave off strong inflation, recent mixed UK data has weighed on hopes of that happening as soon as November.

Cunliffe indicated that he was concerned about Britain’s economy. He stated;

‘I am not going to try and anticipate the meeting, but for me the economy has clearly slowed this year.
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It has slowed because of the squeeze we have seen on real incomes and imported inflation from the depreciation [Sterling] that has come in. And pay has remained relatively subdued.

In our August forecast we forecast that rate of growth [GDP] of about 1.5% a year, and it is going to continue for the next two to three years. And pay is going to gradually pick up from around 2% to around 3.5% by the end [three year forecast period].’


Due to Cunliffe’s cautious statements, bets of a November interest rate hike slipped and the Pound saw weaker performance.

USD Mixed as Trump Reportedly Close to Revealing Next Fed Chair


After weeks of stronger trade, the US Dollar has become volatile in recent sessions as uncertainty about the future of the Federal Reserve has spiked.

Fed Chairwoman Janet Yellen’s term as Fed boss is set to end in February 2018, meaning the subject of her potential replacement has been quietly speculated in the background for months now.

In recent days though, it has emerged that US President Donald Trump is very close to making a decision on his pick for the next Fed Chair and this has caused market uncertainty.

It’s possible that Trump will simply give Yellen another term and this wouldn’t have much impact on the US Dollar. However, markets currently bet that Fed Governor Jerome Powell as the favourite to be picked.

It may also be neither of them, as Stanford University Professor John Taylor and others have also been popular betting picks.

According to Bart Wakabayashi, branch manager at State Street Bank in Tokyo;

‘It’s a big question for the markets. It’s one thing to speculate about it, but it’s another to take an FX position,

Still, the rumors trigger some selling and buying, on perceptions of who might be more dovish or more hawkish.’


GBP/USD Forecast: UK Growth Data in Focus


Wednesday will see the publication of Britain’s Q3 Gross Domestic Product (GDP) projections, which could have an influence on Bank of England (BoE) interest rate hike bets as well as the strength of the Pound.

British growth is forecast to have remained at 0.3% quarter-on-quarter and have slowed from 1.5% to 1.4% year-on-year.

This would fall in line with BoE Deputy Cunliffe’s outlook so would be unlikely to alter the Pound’s movement much.

However, much stronger growth data could boost GBP/USD demand and cause a jump in November interest rate hike bets.

Wednesday’s US data could also influence GBP/USD slightly. September’s US durable goods orders and new home sales reports could cause some ‘Greenback’ movement.

On top of this, any developments in Brexit talks or Federal Reserve Chair news would directly impact the Pound to US Dollar exchange rate.
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