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GBP/EUR, GBP/USD Exchange Rate Forecast: Dovish Fed Dominating Pound Sterling, Euro Sentiment Today

A significantly more dovish than expected tone from the Federal Open Market Committee (FOMC) last night has sent the ‘Buck’ (USD) plunging, with the Euro (EUR) in particular experiencing a strong initial boost in response.

GBP/EUR Exchange Rate Declined on Soft UK Retail Sales as Markets Prepared for Impact of Fed Rate Decision

The Pound Sterling to Euro (GBP/EUR) exchange rate has moved between lows of 1.35 and highs of 1.37 this week. Coming off the back of an unexpected decline in the Eurozone Consumer Price Index on Wednesday, with inflation slowing from 0.2% to 0.1%, the common currency (EUR) remained relatively dovish through the majority of trading yesterday. With no fresh, major economic data due for release from the currency union before the weekend the Euro has been driven primarily by foreign developments as markets waited for the potentially pivotal September Rate Decision from the Fed. However, in spite of this, the GBP/EUR exchange rate was spurred into an abrupt slump to 1.3673 early on Thursday as August’s UK Retail Sales fell short of forecast to temporarily soften the Pound (GBP). As investors were quick to dismiss the importance of these figures, particularly after a strong showing on labour market data the day before, the Euro was ultimately unable to maintain this trend.

Euro (EUR) Sentiment Rose with ‘Greenback’ (USD) Decline before Prospect of Future European Central Bank (ECB) Loosening Turned Movement Bearish

As the Federal Open Market Committee (FOMC) decided to leave interest rates unchanged last night, with a decidedly dovish tone in accompanying comments from policymakers, the single currency experienced a surge in demand. In part this was due to the relative weakening of the ‘Greenback’ (USD) as it was weighed down by the possibility of a Fed hike being delayed into 2016. While this shoring up of the Euro initially sent the GBP/EUR conversion rate to a low of 1.3628 it was not long before investors began to revaluate the implications of Thursday’s more dovish than expected tilt from the Fed. The possibility of the European Central Bank (ECB) having to implement further monetary loosening measures would appear to be dramatically increased, with the prospect of future weakening already beginning to weigh on the common currency.

GBP/USD Exchange Rate Made Gains in Advance of Fed Rate Decision on Thursday in spite of UK Retail Sales Slippage

Thursday saw the Pound Sterling to US Dollar (GBP/USD) currency pair trending at a narrow positive throughout most of the day, as interest rate speculation held the ‘Greenback’ down and Sterling failed to particularly slow as a result of underperformance in UK Retail Sales. Improving housing and Jobless Claims data for the US were overshadowed as traders move to position themselves ahead of the evening’s Fed call. A significant shortfall on the Philadelphia Fed Manufacturing Survey threw more doubt on the outcome of the September session, although the majority of economists were already of the opinion that a take-off was unlikely at this juncture.

No Change from Federal Open Market Committee (FOMC) Sent ‘Greenback’ (USD) on Downtrend, GBP/USD Conversion Rate Climbed to Three-Week High

After the FOMC ultimately chose to maintain interest rates at their near-seven-year low of 0.25% the ‘Buck’ was quick to fall across the board, spurred by unexpectedly dovish commentary from Fed Chair Janet Yellen. The citation of global market concerns as the primary cause behind the decision to hold has sparked a degree of anxiety in investors, with bearish trends beginning to drag down the European stocks this morning. However, as the wider implications of the Fed’s inaction are still to be seen the GBP/USD exchange rate remains on an uptrend in the range of 1.5626 at present.