Pound US Dollar (GBP/USD) exchange rate muted ahead of FOMC

Pound US Dollar (GBP/USD) exchange rate subdued ahead of latest Fed minutes

The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range this morning as markets await the publication of the minutes from the Federal Reserve’s  policy meeting.

At the time of writing, GBP/USD is trading at $1.2615, virtually unchanged from this morning’s opening rate.

US Dollar (USD) flat ahead of Fed meeting minutes

The US Dollar (USD) is holding steady against the majority if its peers this morning ahead of the release of latest Federal Reserve meeting minutes.

In recent weeks, the Fed have portrayed an increasingly hawkish consensus surrounding upcoming interest rate cuts, and markets will look the central bank’s minutes for any deviation from their otherwise hawkish stance.

With the CME Fed Watch Tool currently pricing a 50% chance of a cut in June, should the minutes strike a more dovish tone, this may increase rate cut bets and in turn undermine USD exchanged rates.

However, the minutes may not shed any new light on the bank’s monetary policy, particularly in the wake of recent comments from Fed Chair Jerome Powell.

Matt Simpson, Senior Analyst at City Index, explains:

‘I doubt we’ll glean too much from the FOMC (Federal Open Market Committee) minutes since Fed members have been highly vocal on their stance.’

Pound (GBP) rangebound following Bailey Comments

The Pound (GBP) is trading sideways this morning on the back of recent commentary from Bank of England (BoE) Governor, Andrew Bailey, and several of his colleagues.

Speaking to the Treasury select committee yesterday, Bailey and his fellow policymakers hinted that the central bank could begin cutting interest rates before inflation falls to its 2% target, pointing to ‘encouraging signs’ of price pressures easing.

Bailey told MPs that the BoE would want to ‘ensure inflation returned sustainably to target,’ and said:

‘We are looking beyond that temporary period of being what we think will be down at target. We want to get it down and keep it down.’

Touching on interest rates, Bailey was reluctant to comment on any specifics, but signalled that market predictions of a rate cut this year are ‘not unreasonable’.

The mixed commentary coupled with an unclear trajectory surrounding rate cuts has hobbled Sterling’s trade this morning, and kept it trading in a narrow range.

GBP/USD exchange rate forecast: PMIs to bolster GBP sentiment?

Looking past the latest Federal Reserve meeting minutes, the likely catalyst of movement will be the release of the latest UK and US S&P PMI data, scheduled for release on Thursday.

The Pound may rally as the preliminary results are expected to report that growth in the UK’s vital services sector slowed slightly in January, however, a modest slowdown would still mark the sector’s second strongest growth level in a nine-month period.

Turning to the US, while not as influential, the latest PMIs may weigh on USD sentiment should the data report growth in the US private sector cooled this month.

Sarah Ebrahem

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