GBP USD Exchange Rates Inch Backwards Ahead of BoE Rate Announcement

November 2, 2017 - Written by David Woodsmith

STORY LINK GBP USD Exchange Rates Inch Backwards Ahead of BoE Rate Announcement

The Pound US dollar exchange rate pared some gains this morning as markets grew increasingly skittish before the big Bank of England (BoE) widely anticipated rate announcement.

GBP Exchange Rates Slide as Markets Prove Wary Ahead of BoE Decision

The Pound slid against the US Dollar this morning, despite UK data releases this week continuing to prove positive.

The IHS Markit UK construction PMI demonstrated a rise to 50.8 in October, up from September’s disappointing print of 48.1 – the lowest seen in fifteen months.

Growth within the construction sector was predominantly confined to house building, developments that made up for the lower volumes of civil engineering and commercial activity.

However, business confidence within the sector fell for the next 12 months to its lowest reading since December 2012, with the primary concern being ongoing uncertainty regarding the future economic prospects of the UK.

Nonetheless, any figure above 50 demonstrates growth and following yesterday’s positive UK manufacturing print these figures give no reason to expect a dovish shift from the BoE.

And yet, markets remain skittish.

Understandably there’s is always the potential chance that BoE Governor Mark Carney and other members of the Monetary Policy Committee (MPC) will not fulfil their expectations, even if the majority of economists and investors have already priced in a rate hike. Whilst this is not expected, the markets prefer not to be caught unawares.

This prospect has limited the Pound this morning.

Fed Leaves Interest Rates Unchanged, USD Exchange Rates Bearish

The Federal Reserve decided to leave interest rates unchanged at the November policy meeting yesterday, though they also acknowledged that US economic growth remains ‘solid’, leaving the door open for a rate hike in December

In respect to the late-summer hurricanes and the potential damage wrought, the bank’s statement was dismissive, asserting that the storms would likely not have much of a long-term impact on overall economic activity.

The statement read:

‘The labour market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further’.

Prior to this meeting traders put the percentage chance of a rate hike in December at around 85%. This remains unchanged.

The US Dollar dipped slightly nonetheless, with markets increasingly wary about the imminent decision from US President Donald Trump regarding who will be replacing Janet Yellen as Fed Chairman – a decision that could potentially mean significant changes to monetary policy.

GBP USD Forecast: Market Speculation Regarding the BoE’s Future Monetary Policy

With the BoE rate meeting imminent, markets have been speculating on whether a rate hike today will be the beginning of a cycle of tightening or simply a one-off policy measure.

One think tank, the National Institute of Economic and Social Research (NIESR) insists that the BoE will move to push rates by 25 basis points every six months until a 2% target is reached.

They also forecast that inflation will peak at 3.2% before the end of this year before easing back down to target levels in the second half of 2019.

If the Bank of England reflects this kind of monetary policy in their accompanying statement today then the Pound will likely climb, as it would indicate an extended period of tightening.

Conversely, a cautious statement that doesn’t indicate whether the Bank will move for future rate hikes or not could limit the future potential of the Pound after the initial rally that occurs (in the event of a rate hike).

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TAGS: Daily Currency Updates Dollar Pound Forecasts