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US Dollar to Pound Sterling (USD/GBP), ‘Greenback’ to Euro (USD/EUR) Exchange Rates Tumble on Fed Interest Rate Timeline, BoE Hikes Ahead?

The US Dollar to Pound Sterling (USD/GBP) exchange rate was trending lower in Friday’s European session while the US Dollar to Euro (USD/EUR) exchange rate managed to register gains as the situation in Greece fell apart.

Euro (EUR) to Pound Sterling (EUR/GBP), US Dollar (EUR/USD) Exchange Rate Forecast to Drop if Greece Turns to Russia for Financial Aid

It appears as if things are going slightly pear shaped as the Greek Prime Minister returned to Russia claiming that the EU needs solidarity. Greece could potentially turn to Russia for economic support and leave the Eurozone, a move that is likely to see the Euro (EUR) exchange rate plummet.

The US Dollar to Pound Sterling (USD/GBP) and US Dollar to Euro (USD/EUR) exchange rates were both trending lower in Thursday’s European session after the Federal Reserve dampened hopes for an interest rate hike in the near future.

Federal Reserve Airs Caution on Fed Rate Hike Timeline – USD/GBP, USD/EUR Weakens as Yellen Warns over Strong US Dollar

The Federal Open Market Committee (FOMC) announced it was keeping interest rates on hold in June (no surprise there really), but Fed Chairwoman Janet Yellen said she wanted to edge cautiously toward higher borrowing costs.

Yellen also commented on the strong US Dollar and suggested that it would be a consistent drag on US economic growth.

Yellen stated: I think we have seen that it’s had a negative effect on net exports and so serves as a something of a drag on the economy, and probably that drag is going to continue for some time to come.’

However, Yellen suggested that the Federal Reserve could still hike interest rates in the second part of the year.

Yellen continued: ‘In spite of the appreciation of the Dollar, [the Fed] obviously thinks that the economy is likely to do well enough to call, likely call, for some tightening later this year.’

US Core Inflation Drops – US Dollar (USD) Exchange Rate Weakens

Meanwhile, US core inflation took a surprising tumble on Thursday, falling from 1.8% to 1.7% in May on the year. The non-core Consumer Price Index (CPI) climbed out of deflation from -0.2% to 0.0%, but remained a little shy of the 0.1% forecast.

Pound Sterling (GBP) Exchange Rate Forecast to Continue Bullish Nature as Investors Price in BoE Rate Hikes- GBP/EUR, GBP/USD Strengthen

Meanwhile, the Pound (GBP) kept playing its bullish role on Thursday as investors priced in a Bank of England (BoE) interest rate hike taking place in the near future. It’s expected that after Wednesday’s strong UK wage growth ecostat the central bank may become more hawkish and perhaps a policymaker divergence on the topic of interest rates may occur.

Markit economist Chris Williamson commented: ‘Some policymakers will therefore be getting increasingly twitchy trigger fingers given the encouraging pay growth, and a chance of a rate hike this year has risen substantially. If the pace of economic growth revives, as widely expected, the recent upturn in pay takes away the main remaining argument to hold off with raising interest rates, and pressure to tighten policy looks set to build significantly as we move into the second half of the year.’

UK Retail Sales remained at 4.6% on the year in May as the month registered 0.2% growth and offered the Pound Sterling (GBP) exchange rate some strength.

Euro (EUR) Exchange Rate Forecast to Flop if Greek Default on IMF Payments Causes Grexit Threat to Intensify – EUR/GBP, EUR/USD Weaken

Meanwhile, the Euro (EUR) exchange rate softened when the situation in Greece looked to be headed toward a catastrophic end. The prospect of a Greek default is becoming more prominent as the nation repeatedly suggests that if no deal is in place by the end of June, no payment will be made to the International Monetary Fund (IMF).

Furthermore, it looks as if Greek Prime Minister Alexis Tsipras has more riding on the Greek negotiations than just the country’s fate. Apparently, the Greek PM told French President Francois Hollande that his wife would leave him if he gave in to creditors’ demands.

Hollande is reported to have said: ‘[Tsipras] informed me that if he gave in to too many of the troika’s demands, he risked not only losing his party but also his partner, who is a fierce militant and is much farther left than him.’

Friday’s session began with news that Thursday’s Eurogroup meeting had broken down within an hour of starting and still no deal has been made.

The US Dollar to Pound Sterling (USD/GBP) exchange rate is trending in the region of 0.6285.

The US Dollar to Euro (USD/EUR) exchange rate is trending at 0.8780.