Pound US Dollar (GBP/USD) Exchange Rate Slides as US Treasury Yields Rise

April 23, 2018 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Slides as US Treasury Yields Rise

The Pound US Dollar (GBP/USD) exchange rate is drifting lower again today as it comes under pressure due to rising US bond yields.

US Dollar (USD) Exchange Rate Surges as Dollar Bulls Return

The US Dollar (USD) is off to a strong start against the Pound (GBP) and the majority of its other peers this week as after weeks of sliding back the US currency appears to have final found its stride once again.

In fact the Dollar index which measures USD against a basket of currencies climbed by around 0.45% today, rising to its best levels since the start of March as markets strike an increasingly bullish stance towards the US currency.

This uptick in the US Dollar has seen the GBP/USD exchange rate plummet around half a cent since trade opened this morning.

The increased demand for the US Dollar has largely been attributed to the continued rise in US Treasury yields, which have been supported by increased speculation regarding the Federal Reserve’s policy plans for this year.

Ulrich Leuchtmann, currencies strategist at Commerzbank said as he forecast further monetary tightening from the Fed;

‘Finally rising U.S. yields are having at least some effect on the dollar. Investors could not ignore this indefinitely.

If you believe that the Fed will do what it has done for the last 30 to 40 years, then you will have to come to the conclusion that this will be positive for the dollar.’

The release of some upbeat US housing data could see the US Dollar build on its momentum later this afternoon as well, with economists forecasting that US existing home sales will have seen a moderate uptick in March.

Uncertainty of BoE Rate Hike Leaves Pound (GBP) Exchange Rate Weakened

Meanwhile Sterling continues to face some pressure today as investors remain cautious ahead of next month’s rate decision by the Bank of England (BoE).

Hopes of a possible rate hike from the BoE next month were dealt a heavy blow last week as BoE Governor Mark Carney suggested in an interview with the BBC that the bank could still delay is next rate hike.

Carney’s suggestions that he was ‘conscious that there are other meetings over the course of this year’ caused the odds of a May rate hike to plummet from 85% to 56% last week, which in turn saw Sterling nosedive from its recent highs.

However not everyone is convinced that next month’s interest rates decision from the BoE is the sole source of the Pound’s recent downturn.

Some analysts suggest that Sterling is also being pressured by soft UK data published recently as well as the reignited concerns over Brexit may all be hampering the GBP exchange rate.

Rebecca O’Keeffe, head of investment at interactive investor said;

‘With UK economic growth lagging behind all other major economies, and the path of Brexit once more looking distinctly rocky, Sterling’s recent strength is in danger of reversing sharply, particularly if Prime Minister May’s position comes under further pressure.’

GBP/USD Exchange Rate Forecast: UK Economic Growth Expected to Slow

Looking ahead the GBP/USD exchange rate may face further losses later this week as the UK publishes its latest growth figures.

Economists forecast that Friday’s GDP reading will reveal that UK economic growth slowed from 0.4% to 0.3% in the first quarter, likely resulting in the Pound being driven even lower, especially if it seen as limiting the chances of the BoE raising interest rates next month.

However Sterling may not be the only one to suffer due to slowing growth this week as the US also releases its own GDP data.

The US data is also expected to a show a slowdown in economic growth in the first quarter, with US GDP forecast to have slowed from 2.9% to 2% in the first three months of 2018.

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TAGS: Pound Dollar Forecasts