Dovish Yellen Puts Brakes on US Dollar (USD) Exchange Rate Strength
Following a warning from the Bank of England (BoE) Financial Policy Committee over the potential negative impact of Brexit the Pound (GBP) has nevertheless been regaining ground against rivals. With Fed Chair Janet Yellen having taken a more dovish stance with regards to monetary policy the appeal of the US Dollar (USD), meanwhile, has taken a battering overnight. As a result the Pound Sterling to US Dollar (GBP/USD) exchange rate has been trending higher around 1.4446 on Wednesday morning.
Economic data is a little thin on the ground following the Easter bank holidays, leaving the Pound (GBP) on a weaker footing against rivals as markets await the latest Bank of England (BoE) Financial Policy Committee statement.
Pound Sterling (GBP) Softens as Outlook of British Steel Industry Remains Uncertain
Sentiment towards Pound Sterling (GBP) has not particularly improved over the Easter holiday, with investors continuing to lack any significant incentive to return to the weakened currency. Worries over the UK’s future in the European Union have been weighing heavily on the appeal of the Pound, especially in the wake of the political chaos created by Chancellor George Osborne’s latest budget. However, in the absence of fresh economic data Sterling was able to recover some of its recent losses over the long weekend.
On Tuesday morning the Pound has, nevertheless, returned to a downtrend against many of the majors. Investors are adopting a more cautious footing ahead of the Bank of England’s (BoE) latest Financial Policy Committee statement. Markets are also taking on a somewhat nervier disposition as the British steel industry hangs in the balance, with a meeting of Tata steel’s top executives potentially deciding the future of the Port Talbot steel works, one of Britain’s largest.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Trends Narrowly on ECB Easing Worries
Speculation over the policy outlook of the European Central Bank (ECB) has remained the major driving force of the Euro (EUR) over the last week, with conflicting messages from various members of the Executive Board. While some policymakers are adopting a more hawkish tone, indicating that monetary policy has likely reached its limits, others have suggested that interest rates may be cut lower and helicopter money introduced.
Further volatility should be expected tomorrow, with the release of March’s German Consumer Price Index figures. If inflationary pressure within the Eurozone’s powerhouse economy is shown to have risen on the year, however slightly, this could prompt another Euro rally.
US Dollar (USD) Exchange Rates Strengthen despite Disappointing Inflation Data
Although yesterday’s Personal Consumption Expenditure failed to show the expected uptick in US domestic inflation the US Dollar (USD) has remained on largely bullish form. While inflationary pressure held steady at 1.7% on the year in February this was not sufficient cause for traders to sell out of the currency, with economic data continuing to take a back seat to policymaker rhetoric.
After last week’s rash of hawkish commentary from members of the Federal Open Market Committee (FOMC) markets are anxious to hear from Fed Chair Janet Yellen later today. Should Yellen adopt a tone at odds with that which emerged from the recent FOMC policy meeting the ‘Greenback’ could continue to extend its gains against rivals. Any affirmation of a more dovish outlook on interest rate normalisation, however, is likely to put a greater dent in the appeal of the US Dollar.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending narrowly around 1.2732, while the Pound Sterling to US Dollar (GBP/USD) pairing was slumped in the region of 1.4234. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was trending lower at 1.1179.