GBP/USD Forecast: Pound to US Dollar Exchange Rate Starts 2018 at 3-Month High

US Tax Bill Fails to Lift US Dollar (USD) Exchange Rates

The Pound to US Dollar (GBP/USD) exchange rate is currently trading at a three-month high, after registering gains of around 150 pips over the holiday period.

It seems that with little else to focus on, traders decided to sell the US Dollar (USD) in response to the recently passed tax reform bill. While the cut in corporation tax is expected to boost economic output and inflation in the short-term, the measures are likely to add over $1 trillion dollars to the US account deficit over the next ten years.

While the ‘Greenback’ had rallied in anticipation of the tax bill, the follow through was not forthcoming and the US Dollar has entered the New Year on the back foot versus most of the majors.

US Dollar (USD) Exchange Rate Fluctuations Forecast with Fed Minutes on Tap

The Federal Reserve raised rates 25 basis points in December and projected three further rate hikes in 2018.

However, the US Dollar depreciated following the decision as traders had hoped for a more hawkish 2018 outlook.

On Wednesday the US central bank releases the minutes from the December meeting, and if the report reveals that policymakers were considering upping their interest rate projections due to the impact of the US tax bill then we could see a reversal in fortunes for the US Dollar.

On the other hand, if the report confirms that the Fed does not intend to accelerate its hiking cycle then we could see further gains for GBP/USD.

UK Services PMI & US Non-farm Payrolls Could Impact GBP/USD Exchange Rate

Also on the agenda this week is the UK service sector PMI, which is tipped to remains sturdy at 54.0. Anything higher could bolster the appeal of the Pound, while a softer print could weigh.

The US non-farm payrolls report is expected to show that jobs growth moderated from 228,000 to 188,000 in December.

The predicted slowdown to just under 200,000 is unlikely to have a marked impact on demand for the ‘Greenback’ but a score closer to the 100,000 mark could certainly lead to a reduction in Fed rate hike bets.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard