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USD/GBP Exchange Rate Rises Today ahead of Key Iran Nuclear Deal Update

May 8, 2018 - Written by Ben Hughes

On Monday, the US Dollar to Pound exchange rate opened in the region of 0.7386 but later closed down slightly lower around 0.7370.

This minor deterioration was partly caused by cautious remarks from Federal Reserve policymakers Robert Kaplan and Raphael Bostic.

Both officials at the US central bank stated that despite mounting pressures on the US economy, they saw no immediate need to hike interest rates.

Only Mr Bostic is a voting member of the Federal Open Market Committee (FOMC) in 2018, but two voices against an immediate interest rate hike lowered confidence among USD traders.

Despite this dovishness between Mr Kaplan and Mr Bostic, a new addition to the Fed was less cautious on Monday and hinted at imminent US interest rate hikes.

This was Thomas Barkin, who became Fed Bank of Richmond President earlier this year. Mr Barkin said;

‘The economy’s performance as we sit here today is remarkably strong: above trend growth, low unemployment, inflation at target’.

USD/GBP Exchange Rate Rises on Hints of Accurate Fed Forward Guidance

The US Dollar (USD) has risen by 0.4% against the Pound (GBP) today, thanks to recent statements from Federal Reserve Chair Jerome Powell.

Speaking in Zurich, Mr Powell suggested that the next US interest rate hike might be easier to predict thanks to clearer forward guidance from Fed policymakers.

Forward guidance is itself a risky practice, as while a surprise interest rate hike can provoke currency volatility, a rate freeze when a hike was expected can lower confidence among USD traders.

Stating his desire to avoid either of these situations, Mr Powell said;

‘We will communicate our policy strategy as clearly and transparently as possible to help align expectations and avoid market disruptions’.

Market Fears about BoE Interest Decision Leave GBP/USD Exchange Rate Low

The Pound (GBP) has failed to advance against the US Dollar (USD) recently, owing to trader uncertainty about this week’s Bank of England (BoE) interest rate decision.

A rate hike up to 0.75% had been largely priced in over recent months, but a string of negative UK data releases have caused economic analysts to reconsider.

This prevailing uncertainty has lowered confidence among GBP traders and a lack of strong positive UK data releases recently haven’t helped in the matter.

USD/GBP Exchange Rate Forecast: Risk of US Dollar to Pound Volatility on Trump’s Iran Decision

The next event that could cause US Dollar to Pound (USD/GBP) exchange rate fluctuation will come imminently when US President Donald Trump makes an announcement.

Mr Trump will be revealing whether the US will leave the Iran nuclear deal, renew its commitment to the arrangement or simply continue to consider the future of the agreement.

This is considered a significant piece of foreign policy for the President to decide on, as depending on his choice the price of crude oil could rise sharply and provoke global commodity market volatility.

Considering the implications of fresh US sanctions against Iranian oil exports, Barclays analysts have said;

‘The geopolitical consequences of a possible dismantling of the (Iran deal) would likely play a larger and long-lasting role in pushing oil prices higher than short-term policy uncertainty’.

US Dollar volatility is probable regardless of the outcome; if the US remains in the Iran deal without any major deviation then the US Dollar could rise further as part of a relief rally.

On the other side of the pairing, the next major UK data to watch out for will be Thursday’s Bank of England (BoE) interest rate decision.

BoE policymakers are not expected to adjust interest rates from 0.5%, but even this as-expected outcome could weaken the Pound.

Officials at the BoE had previously been expected to hike rates to 0.75% as recently as early April, so there could still be trader disappointment if a rate freeze is seen.

As well as the rate decision itself, the Pound could also be affected by the later press conference held by BoE Governor Mark Carney.

If Mr Carney suggests that the next UK interest rate hike could be a long way off, the GBP/USD exchange rate could fall sharply before the weekend.

Despite all forecasts to the contrary, an unexpected BoE interest rate hike may trigger a rally for the Pound and great gains in the GBP/USD exchange rate.
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