Pound US Dollar Exchange Rate Struggles to Hold as Key Central Bank Decisions Anticipated
In what could be a key week for the Pound US Dollar (GBP/USD) exchange rate, the pair is tumbling as investors anticipated central bank policy decisions later in the week. Hawkish Federal Reserve speculation is keeping the US Dollar (USD) buoyed.
Last week saw the Pound (GBP) try to claw back some gains, and GBP/USD advanced from the interbank level of 1.38 to 1.39 throughout the week.
Since markets opened yesterday though, GBP/USD has already shed all of last week’s gains. At the time of writing, the GBP/USD interbank rate is near last week’s opening levels around 1.38 again.
The Federal Reserve policy decision is set for Wednesday evening, with the Bank of England (BoE) decision following on Thursday. Any attempt from banks to douse bullish market speculation could cause big exchange rate movement.
Pound (GBP) Exchange Rates Soften as Bank of England (BoE) Awaited
The Pound has been unable to hold its ground against some major rivals, including the US Dollar, this week so far. Investors are selling the Pound after weeks of strong performance, as markets await the Bank of England’s (BoE) March policy decision.
Markets remain overall optimistic on Sterling, due to UK economic recovery hopes. BoE Governor Andrew Bailey has also been optimistic on the UK economy lately.
This is keeping Sterling from slipping too much as markets adjust positions.
Today’s news that UK bakery chain Greggs had posted its first yearly loss in 2020 had little impact on Sterling. The chain has also said that 2021 performance is better than expected so far.
US Dollar (USD) Exchange Rates Firm as Markets Speculate Hawkish Federal Reserve
Investors are anxious in anticipation of the Federal Reserve policy decision set for Wednesday evening. Speculation that the Fed could take a more hawkish stance on the US economy or monetary policy is making the safe haven US Dollar more appealing.
According to You-Na Park-Heger. FX and EM Analyst at Commerzbank:
‘Overall, the economic situation is improving further. What is decisive for the market is how the central banks react to this,’
A more hawkish Fed could make markets more risk-off. This is why the US Dollar is strengthening this week so far.
This week’s hawkish Fed speculation comes despite the Fed recently signalling that monetary policy would not be tightened without a sustained rise in inflation.
Pound US Dollar (GBP/USD) Exchange Rate Could Climb if Fed Remains Dovish
This afternoon will see the publication of some key US ecostats. This includes manufacturing and industrial production, as well as retail sales results.
US retail sales could influence USD movement if it surprises. However, US Dollar investors will likely remain focused on the upcoming Federal Reserve policy decision for now.
The Fed decision will be announced on Wednesday evening. No changes to monetary policy are expected, and analysts predict the bank will attempt to cool the market’s talk of a potential hawkish shift.
According to a note from MUFG Analysts, markets could keep speculating on a more hawkish Fed unless the bank takes a firm stance on current policy:
‘Anything less than a strong message of the Fed being very committed to maintaining favourable financial market conditions will likely see USD advance further’
As for the Pound, it could see mixed movement until later in the week when the Bank of England (BoE) holds its own policy decision.
As a result, the Pound US Dollar (GBP/USD) exchange rate’s movement will be driven by US Dollar strength for now.