Pound US Dollar (GBP/USD) Exchange Rate Muted Ahead of Jackson Hole

August 27, 2020 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Muted Ahead of Jackson Hole

Pound Sterling US Dollar (GBP/USD) Exchange Rate Flat Ahead of Powell’s Jackson Hole Speech

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat on Thursday morning, leaving the pairing trading at around $1.3191.

The US Dollar remained near a one-week low ahead of a speech from the US Federal Reserve chair, Jerome Powell.

It is expected that the head of the central bank will signal the bank is going to tweak its policy in order to push up inflation.

Powell is set to address the annual conference later today, which is being held virtually due to the coronavirus pandemic.

Traders will be focused on whether the Fed chief will address inflation, and according to managing director for interest rate strategy at Jefferies, Mohit Kumar:

‘Market expectations are for a dovish Powell with the consensus view that Powell would unveil (or strongly hint) at the flexible inflation targeting framework. The new framework would allow for a short term overshoot in inflation above the target, and hence allow the Fed to keep accommodative policies for longer. We expect Powell to broadly outline the Fed’s thinking around inflation targets and the rationale for a shift in the framework but refrain from providing exact details.’

Pound (GBP) Flat as Traders Shrug Off Car Production and Brexit Pessimism

Sterling remained flat against the Dollar today as traders waited for the upcoming annual Jackson Hole conference where they will be on the lookout for any hints about monetary policy from central bank chiefs that could cause market movement.

The Pound has brushed off the latest car production data which showed that production recovered last month. Although July’s production was still down -21% compared to July 2019.

Added to this, Sterling traders also shrugged off data showing the service sector saw the fastest job cuts on record in the three months to August.

Traders are also eagerly awaiting signs from Federal Reserve Chief, Jerome Powell that he will alter the bank’s monetary policy framework in order to boost inflation. This would allow the bank to leave rates lower for longer.

GBP traders will be eyeing the upcoming speech from the Bank of England (BoE) Governor Andrew Bailey. The BoE’s chief is expected to talk at the virtual event on Friday.

Meanwhile, Sterling shrugged off further bouts of Brexit pessimism overnight. This was after Germany’s Chancellor, Angela Merkel removed Brexit from the agenda of an EU ambassadors meeting next week. She said this was due to a lack of progress in negotiations.

According to Marshall Gittler, BD Swiss’ head of investment:

‘The rise in GBP is yet another sign that the market is ignoring Brexit.

‘It’s been expected that German Chancellor Merkel could play a crucial role in breaking any deadlock, but it appears she’s giving up hope. GBP fell briefly on the news but it didn’t last long.’

Pound US Dollar Outlook: All Eyes on BoE Governor Bailey

Looking ahead to Friday, the US Dollar (USD) could struggle to make gains against the Pound (GBP) following the release of the latest US personal income data.

If personal income slumps further than expected in July following two earlier declines, it will weigh on the ‘Greenback’. Although, this could dampen risk sentiment and send the riskier Pound lower as well.

Meanwhile, GBP traders will be eagerly awaiting the upcoming speech from the British central bank chief, Andrew Bailey.

If the Bank of England’s (BoE) Governor’s speech is overly dovish and he hints that policymakers are likely to send interest rates into negative territory, it will weigh on Sterling sentiment. This will send the Pound US Dollar (GBP/USD) exchange rate lower at the end of this week’s session.

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