The Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher in Thursday’s European trading while the Pound Sterling to US Dollar (GBP/USD) exchange rate declined after the Federal Reserve hinted that interest rate hikes could be on the way.
The Federal Reserve has always been extremely careful when it comes to language surrounding interest rate hikes and Wednesday saw the Federal Open Market Committee (FOMC) remove the word ‘patient’ from its vocabulary–a move that has been highly anticipated by investors.
The Fed intimated that it would consider hiking interest rates as early as June, no longer suggesting policymakers could afford to be ‘patient’ when it came to raising borrowing costs.
However, Federal Reserve Chairwoman Janet Yellen, who has always appeared to be honest and upfront with markets, stated that there was still no rush for higher interest rates.
Yellen stated: ‘Just because we removed the word “patient” from the statement doesn’t mean we’re going to be impatient.’
Although Yellen said that a rate hike in June was nowhere near definite, she did suggest ‘we can’t rule that out.’
US Dollar to Euro (USD/EUR), US Dollar to Pound Sterling (USD/GBP) Exchange Rates Drop on FOMC
Initially the US Dollar to Pound Sterling (USD/GBP) exchange rate sank to 0.6636 before climbing to session highs of 0.6755 on Thursday. The US Dollar to Euro (USD/EUR) exchange rate slipped to lows of 0.9107 before regaining strength to reach its session pinnacle of 0.9396.
It’s not surprising the Federal Reserve is treading carefully when it comes to a sensitive topic like interest rates when so many central banks are adopting dovish tones.
The Bank of England (BoE) recently became more dovish on the topic of rate hikes after months of hinting that they could occur soon.
After Mark Carney’s unreliability last year, many investors have found it difficult to map out a timeframe for UK rate hikes.
However, BoE Chief Economist Andrew Haldane is scheduled to speak later in Thursday’s European trading and could influence the Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates quite significantly.
Meanwhile, the European Central Bank (ECB) is moving in the opposite direction; instead of attempting to hike rates, it’s introducing further monetary stimulus. The ECB recently began a period of quantitative easing (QE) which President Mario Draghi has suggested is already having a positive effect.
The ECB released its economic bulletin on Thursday which reiterated earlier economic forecasts. However, the ECB added reassurance that the QE was taking effect and that lower interest rates were gradually reaching the real economy.
Pound Sterling Exchange Rate Forecast: GBP/EUR, GBP/USD
The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates could fluctuate further on Friday with the release of UK CBI Trends Selling Prices and Trends Total Orders stats, as well as UK Public Finances and Public Sector Net Borrowing figures.
With no Eurozone or US domestic data of high influence out over the rest of the week, the US Dollar to Euro (USD/EUR) exchange rate is likely to feel the influence of central bank speculation and global developments.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending in the region of 1.4899. The Pound Sterling to Euro (GBP/EUR) exchange rate is trading at 1.3947.