GBP/USD Exchange Rate Static ahead of BoE Interest Rate Decision

June 20, 2018 – Written by Tim Boyer

On Tuesday, the Pound to US Dollar exchange rate opened around 1.3260 and closed lower at 1.3178.

There was no real UK economic data out yesterday, which left uncertainty about a Brexit vote as the main influencer on the GBP/USD exchange rate.

Sterling’s decline in value was because of uncertainty about how a Brexit amendment could affect the final deal reached between the UK and EU.

GBP/USD Exchange Rate Ticks Higher on Forecast-Beating Industrial Orders Growth

The Pound (GBP) has posted minimal gains against the US Dollar (USD) today, although the GBP/USD exchange rate has still not recovered from the slump seen late on Tuesday.

This advance for Pound Sterling has been caused by the news that UK industrial orders rose by more than expected in June, indicating increased demand for UK manufactured goods.

June’s reading showed above-forecast improvement, with a shift from -3 points to 13 instead of the expected 1 point printing.

Perhaps explaining the limited upwards movement of the Pound today, there has been scepticism about whether UK factories will continue to flourish.

Among these cautious economists has been Pantheon Macroeconomics Chief UK Economist Samuel Tombs, who said:

‘Investment in the manufacturing sector likely will remain subdued, given that the medium-term outlook remains clouded by Brexit and the threat of a global trade war.

‘As a result, capacity constraints likely will bite soon, preventing a prolonged period of strong growth in manufacturing output from taking hold.’

USD/GBP Exchange Rate Update: US Dollar to Pound Decline Blamed on Trade War Tensions

US Dollar (USD) traders have been concerned by the latest US economic developments, which have led to the US currency making a fractional loss against the Pound (GBP).

Tensions remain high between the US and China over trading tariffs; it is widely suspected that a prolonged trade war might end up damaging both countries.

Considering the dangers of an economic conflict, Deutsche Bank analysts have stated:

‘The products affected would likely include consumer goods, which the US government has so far been carefully trying to avoid hitting.

‘Notably, the big question on our economists’ minds is whether China will move beyond trade and target US business interests in China.

‘The team estimate that US firms sold US$ 448bn worth of goods and services to China in 2017, with 37% through trade and 63% through local operations by US subsidiaries in China.

‘Overall, China has not threatened officially to target US firms in China, but it’s one to watch and a risk that our economists see as rising as trade tensions build.’

GBP/USD Exchange Rate Forecast: Are Pound to US Dollar Gains ahead on BoE Interest Rate Decision?

For Pound Sterling (GBP) traders, this week’s main event affecting Pound movement against the US Dollar (USD) will be Thursday’s Bank of England (BoE) meeting.

BoE policymakers will be voting on whether to adjust interest rates from their current 0.5%, but no immediate action is expected.

Instead, economists and GBP traders will be more focused on remarks from BoE Governor Mark Carney and the text of the meeting’s minutes.

Mr Carney will be speaking to journalists after the minutes announcement and will likely touch on the reasoning behind what may be another interest rate freeze.

Traders are most interested in future BoE monetary policy, particularly whether there could be an interest rate hike as early as August.

Based on previous comments, Mr Carney may not explicitly signpost a rate hike in the coming months, but even a hint from the Governor could be enough to boost the GBP/USD exchange rate.

On the other side of the pairing, the US Dollar might next be affected by Thursday evening’s Fed stress test results and Friday afternoon’s PMI readings.

The Federal Reserve stress test looks at how capable the US’s biggest banks are of weathering harsh economic conditions.

Given that the US faced major turbulence in the past because of banking failures, a clean bill of health across the board could raise USD trader confidence and boost the currency.

Closing off the week on a less positive note, Friday’s PMI activity readings are predicted to show a slowdown for the services and composite readings for June, which could lead to USD/GBP exchange rate losses.

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TAGS: Pound Dollar Forecasts