Pound US Dollar Exchange Rate Threatens to Slip Below $1.39 as BoE More Dovish than Hoped

GBP/USD Exchange Rate Tumbles as BoE Disappoints

(Updated 13:00 BST 24/6/21) The Pound US Dollar (GBP/USD) exchange rate has fallen sharply this afternoon, after the Bank of England (BoE) proved more dovish than expected in its latest rate decision.

While the BoE’s decision to leave its monetary policy unchanged this month came as no surprise to GBP investors, they were disappointed that the bank’s forward guidance wasn’t more hawkish in tone.

In its accompanying statement, the BoE referred to the current upswing in inflation as temporary, undermining hopes the bank could begin tapering its quantitative easing programme sooner rather than later and also casting doubts over the potential for the bank to start hiking interest rates in 2022.

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GBP/USD Exchange Rate Rangebound as Markets Brace for BoE Decision

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning as investors await the conclusion of the Bank of England’s (BoE) latest policy meeting later this afternoon.

At the time of writing the GBP/USD exchange rate is trading at around $1.3974, virtually unchanged from this morning’s opening levels.

Pound (GBP) to Skyrocket if BoE Indicates Early Tapering Plans

The Pound (GBP) may punch higher this afternoon as the Bank of England delivers its latest interest rate decision.

No policy changes are expected from the BoE this month, but some economists are predicting a more hawkish tilt by the bank, with is likely to be greeted with cheers from GBP investors.

This shift comes in the wake of a sharp upturn in domestic inflation in May, as well as some increasingly hawkish comments from BoE policymakers over the past month.  

The BoE’s outgoing chief economist Andy Haldane has been particularly vocal in recent weeks in suggesting it may be time to turn off ‘the stimulus taps’.

As a result some analysts believe the BoE could surprise markets today by clearly indicating plans to wind down its bond purchases by the end of summer.

Kallum Pickering, senior economist at Berenberg, comments:

‘We see a roughly even chance that the BoE could surprise markets today by signalling that it will end its planned asset purchases in August, instead of December as previously announced. While such a change would not have major economic consequences, it could take markets by surprise.’

If the BoE does hint at earlier tapering plans, we can expect the GBP/USD exchange rate to retest the $1.40 barrier.

US Dollar (USD) Steady Ahead of US Data

At the same time, the US Dollar (USD) is currently rangebound this morning, ahead of some key US data releases later today, the most impactful of which looks to be the latest durable goods orders release.

Economists are predicting that good order growth will have rebounded sharply in May, surging from -1.3% to 2.8%, which if correct, could help to prop up the US Dollar later this afternoon.

Also in focus will be the final US GDP estimate for the first quarter as well as last week’s US initial jobless claims, which may also prove supportive of USD exchange rates if they print positively.

Pound US Dollar Exchange Rate Forecast: US Inflation Figures in the Spotlight Tomorrow

Looking pat today’s data releases to the end of the week, a key catalyst of movement in the Pound to US Dollar (GBP/USD) exchange rate is likely to be Friday’s US PCE price index.

As the Federal Reserve’s preferred indicator for inflation, we could see a strong reading in May’s index drive the US Dollar higher tomorrow, if inflationary pressure is shown to have continued to build at a rapid pace.

Meanwhile, we may see GBP investors turn their attention back to UK coronavirus statistics, potentially leading to some renewed weakness in Sterling if the outlook continues to deteriorate.