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Pound US Dollar (GBP/USD) Exchange Rate Left Flat as Fed Pauses Easing Cycle

November 21, 2019 - Written by John Cameron

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as Fed in No Hurry to Reassess Interest Rate Paths

The Pound Sterling US Dollar (GBP/USD) exchange rate was left muted, with the pairing currently trading at an inter-bank rate of $1.2947.

The US Federal Reserve’s meeting minutes revealed that policymakers decided to pause its easing cycle following an October rate cut, and it was in no hurry to reassess the path of rates.

Commenting on the Federal Open Market Committee meeting minutes, Head of Americas Fundamental Fixed Income at BlackRock Inc. Bob Miller noted:

‘The committee intends to keep rates on hold for the time being. After three consecutive rate reductions, the mid-cycle adjustment is over. Beyond that [...] new information contained in these minutes was limited.’

However, now that the Fed has paused its easing cycle, the safe-haven Dollar is likely to benefit from any US-China-related jitters which previously caused USD to slump.

US Support for Hong Kong Increases US-China Tensions

On Thursday, sources close to the White House revealed that a trade deal between the US and China was unlikely to be secured this year.

Ongoing protests in Hong Kong have weighed on markets, increasing concern the highly-anticipated US-China ‘phase one’ deal could be delayed until 2020.

Tensions between Washington and Beijing increased as the US House of Representatives passed two bills that back the protestors in Hong Kong despite warnings from China not to interfere.

US President Donald Trump is expected to sign the bills into law, which will likely increase tensions.

Commenting on this, currency strategist at MUFG, Fritz Louw said:

‘The report from Reuters indicating that we might only see a trade deal next year has been driving some of the Yen strength and that can also be seen as a source of some Dollar strength.

‘If you see more negative trade headlines, and with the potential signing in the US of the HK human rights bill, the Yen should strengthen some more.’

Sterling (GBP) Flat as General Election Remains in Focus

The Pound was left flat against the Dollar on Thursday as the upcoming December election remained the main focus of investors.

GBP was left muted thanks to a better-than-expected performance in Tuesday evening’s debate by the Labour leader, Jeremy Corbyn.

Following the debate, a snap poll from YouGov revealed it was a ‘dead heat’ as 51% of those asked supported current Prime Minster, Boris Johnson whereas 49% backed Corbyn.

Analysts believed this result was more favourable for the opposition leader, and commenting on this, Deutsche Bank analysts noted:

‘Given how far Corbyn’s personal ratings are below Johnson’s and how far Labour are behind in the polls, then such a split could be seen as a small victory for the opposition.’

However, Sterling was not far from six-month highs as polls continued to show the Conservatives were ahead of Labour and there would need to be a significant shift in opinion to push GBP out of the current ranges.

Pound US Dollar Outlook: Will Increased US-China Tensions Buoy USD?

Looking ahead to Friday, the Pound (GBP) could edge up slightly against the US Dollar (USD) following the release of flash PMI data.

If November’s UK services PMI rises higher than expected, showing growth in the sector after a month of stagnation, Sterling will receive a boost.

Meanwhile, an increase in US-China trade tensions could provide the Dollar with an upswing of support.

If President Trump signs the Hong Kong human rights bills into law, tensions are likely to rise which could leave the Pound US Dollar (GBP/USD) exchange rate flat if service sector growth buoys Sterling.

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