GBP/USD Exchange Rate Stalls, Markets Brace for ‘Dovish’ Fed Rate Hike
UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate remains in a narrow range this afternoon as markets remain jittery ahead of this evening’s rate decision by the Federal Reserve.
This comes as economists forecast a widely-expected rate hike from the Fed will be seen as dovish, with the bank likely to indicate it may only raise interest rates once or twice in 2019.
— Reuters Top News (@Reuters) December 19, 2018
Meanwhile the Pound struggled to find any momentum this afternoon after November’s dip in inflation appeared to weaken the case for the BoE to adopt a more aggressive pace of monetary tightening next year.
GBP/USD Exchange Rate Flat Ahead of Fed Interest Rate Decision
The Pound Sterling to US Dollar (GBP/USD) exchange rate is muted this morning as markets brace for an expected rate hike from the Federal Reserve later this evening.
At the time of writing the GBP/USD exchange rate is virtually unchanged this morning, leaving the pairing just shy of a two-week high at $1.2647 on the inter-bank market rate.
US Dollar (USD) Exchange Rates Muted in Run-up to Fed Rate Decision
The US Dollar (USD) is trading in a narrow range against the Pound (GBP) and many of its other peers this morning, in the run-up to a highly anticipated rate decision by the Federal Reserve.
The Fed is widely expected to deliver its fourth rate hike of the year this month, with CME Group’s FedWatch tool placing the odds of a hike at over 70%.
However with the move already priced in by most USD investors the focus will instead be on the Fed’s forward guidance for 2019.
While much of the US Dollar’s strength this year has been derived from the Fed’s aggressive monetary policy, it appears this may be coming to an end as analysts suggest the Fed’s forward guidance will strike a more dovish tone.
Jasper Lawler, Head of Research at London Capital Group suggests:
‘Traders will be watching for dovish signs, such as the dropping of the phrase ‘further gradual rate rises’ from the statement and a softening of the dot plot from three hikes to at most two. The dollar has traded lower across the week in anticipation of a dovish hike.’
Pound (GBP) Exchange Rates Subdued as UK Inflation Slows
Pound (GBP) exchange rates are generally rangebound this morning following the publication of the UK’s latest CPI figures.
According to data published by the Office for National Statistics (ONS), UK CPI inflation slowed from 2.4% to 2.3% in November, striking a new 21-month low amidst a sharp drop in oil prices and slowing price growth in recreational items.
The drop is likely to be welcomed by UK consumers as the growing gap between inflation and wage growth grants them more spending power.
GBP/USD Exchange Rate Forecast: Will the BoE Target Multiple Rate Hikes in 2019?
Looking past the Fed’s rate decision later this evening, movement in the Pound US Dollar (GBP/USD) exchange rate looks set to continue being dominated by central bank speculation as the Bank of England (BoE) concludes its final policy meeting of the year.
No policy changes are expected from the bank this month, but similar to the Fed, investors will be paying close attention to the BoE’s forward guidance for any hints how rates may move in 2019.
This could see Sterling surge tomorrow if the recent upswing in domestic wage growth results in the bank signalling that it could hike rates multiple times next year, so long as a Brexit deal is finalised.
Meanwhile the focus for USD investors in the latter half of the week will likely be on the latest US durable goods data, with the US Dollar potentially strengthening if goods orders rebounded in line with expectations in November.