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Pound US Dollar (GBP/USD) Exchange Rate Lowers Despite Risk-On Mood

September 22, 2021 - Written by John Cameron

Pound-to-US Dollar-rate-

GBP/USD Exchange Rate Sinks on Trade Deal Comments

The Pound US Dollar (GBP/USD) exchange rate has fallen marginally today as GBP confidence declines on trade deal headwinds. US Dollar (USD) sentiment is surprisingly upbeat ahead of this afternoon’s Federal Reserve decision, as fifteen major banks concur that imminent tapering is unlikely.

At the time of writing, GBP/USD is trading at $1.3637, slightly down from today’s opening levels.

US Dollar (USD) Trades Mixed Ahead of Interest Rate Announcement

The US Dollar is trading in a mixed range against its peers today as sentiment wavers ahead of the Fed’s interest rate decision this afternoon. Against the Pound (GBP), USD is trading up.

A lack of significant data this morning means currency dynamics are being driven by market mood and various political concerns. A large factor in today’s trading sentiment is the development with Chinese real-estate company Evergrande, which has pledged it will pay off some of its debt.

Evergrande’s remarks have reassured investors previously concerned over the prospect of a ‘Lehman moment’ – complete financial collapse resulting from consecutive losses. If Evergrande can consolidate some of its losses, the Chinese economy is more secure and China’s trading partners have less reason to worry.

Despite a resultant risk-on mood, the safe-haven US Dollar is still finding support from those concerned over Covid case numbers, German elections and Federal Reserve forward guidance. While Fed uncertainty would seem to advise against USD trading, the risk-off ‘Greenback’ often attracts tailwinds in times of economic insecurity.

Economists’ forecasts are varied, with experts at Danske Bank predicting that ‘the Fed will refrain from providing more [tapering] details at this meeting’, while ING analysts expect ‘a more explicit acknowledgment that QE tapering will start this year.’

Pound (GBP) Falls Over Trade Agreement Headwinds

The Pound is trading down against the majority of its peers today as UK Prime Minister Boris Johnson reveals that a free trade agreement between the US and the UK is unlikely to occur before the next general election in 2024.

Johnson was evasive when asked whether he may or may not get a trade deal with America finalised by the time his term comes to an end, remarking that ‘we're going to go as fast as we can.’ He emphasised that ‘a good [Free Trade Agreement]’ was more important than ‘a quick deal’.

In 2016, then-US President Barack Obama said that Britain would be at the ‘back of the queue’ for a trade deal if it voted to leave the EU: Johnson acknowledged these comments ahead of a White House meeting in the US yesterday.

Given the slim likelihood of an imminent trade deal between the UK and the US, ministers are considering alternatives such as joining the existing free trade agreement between the US, Mexico and Canada – known as the USMCA.

The UK is also bidding to joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - a free trade agreement between Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam and Japan.

Uncertainty over the future of international trade has subdued UK trading sentiment amidst other concerns; including Covid and the Chinese economy.

GBP/USD Exchange Rate Forecast: Fed Decision to Drive Movement

The Federal Reserve’s interest rate decision this afternoon will be the main mover of the GBP/USD exchange rate today. The press conference will give Fed Chairman Jerome Powell the opportunity to strike a hawkish or a dovish tone regarding the bank’s forward policy, which will likely decide US Dollar dynamics and subsequently, market sentiment.

In the meantime, trading direction will likely be influenced by external factors such as Covid developments and political relations. If further bearish comments over a UK trade detail ensue, the Pound could face further headwinds.

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