US Dollar to Pound Sterling (USD/GBP) Exchange Rate Dips -0.3% before Forecast Fed Interest Rate Hike

September 25, 2018 – Written by James Fuller

On Monday, the US Dollar to Pound exchange rate opened at a level of £0.7645 and closed slightly lower in the region of £0.7625.

The main negative influence on the US Dollar was the news that the US and China had pressed ahead with sizable trade tariffs against each other.

This brought up concerns about how US businesses and households could be harmed by the tariffs, with economists placing a particular focus on disrupted supply chains.

Today’s USD/GBP Trading: US Dollar to Pound Exchange Rate Declines on Pre-Fed Tensions

The US Dollar has fallen by -0.3% against the Pound and traded in a narrow range against other peers today, in the lull before Wednesday’s Federal Reserve interest rate decision.

In addition to considering whether policymakers will commit to higher interest rates tomorrow, economists are also speculating about rate decisions from November onwards.

Among the speculators has been John Donaldson of Haverford Trust, who said:

‘Fed funds increases in September and December are as certain as certain can be.

‘Their real challenge starts after the first increase in 2019, which will bring the rate to 2.75%, or finally back to even to inflation.’

Pound to US Dollar (GBP/USD) Exchange Rate Rises on Continued Support from Brexit Secretary

On a still-quiet week for GBP traders, the Pound to US Dollar exchange rate has risen today thanks to Monday’s comments from Brexit Secretary Dominic Raab.

Mr Raab supported continued Brexit talks with the EU, in a bid to break through the ‘impasse’ described by Prime Minister Theresa May last week.

The Pound’s gains against the US Dollar have come despite warnings about the Brexit process, from an international aviation body and from German Chancellor Angela Merkel.

In the former case, International Aviation Transport Association (IATA) Director General Alexandre de Juniac warned that:

‘The UK government’s papers on the air transport implications of a “no-deal” departure from the EU clearly expose the extreme seriousness of what is at stake and underscore the huge amount of work that would be required to maintain vital air links.

‘While we still hope for a comprehensive EU-UK deal, an assumption that “it will be all right on the night” is far too risky to accept.

‘Every contingency should be prepared for, and we call upon both the EU and the UK to be far more transparent with the state of the discussions.’

Mr Juniac’s warning comes alongside other manufacturing and trading bodies, all of which are growing increasingly anxious about the potential for economic damage from a no-deal Brexit.

In other news, German Chancellor Angela Merkel has warned that there is precious little time to reach a Brexit agreement and have it ratified.

Ms Merkel has stated that there is a real urgency to:

‘Formulate future relations with the UK as concretely as possible, [or else the transition period will] very quickly become too short.’

Predicting when the UK might finally conclude Brexit talks, Ms Merkel estimated that a provisional agreement ‘might already be achievable in October.’

US Dollar to Pound Sterling Forecast: Will USD/GBP Exchange Rate Rally on Fed Rate Hike?

The US Dollar’s (USD) limited success today could be replaced by a sharp rise on Wednesday, when the Federal Reserve is expected to hike its interest rate.

Coming on Wednesday evening, the Fed’s rate decision is expected to result in a hike from 2% to 2.25%.

While this might seem a small increase on paper, such a rate hike could still trigger a USD/GBP exchange rate rally because it would be the third rate hike seen this year.

USD traders are predicting four total interest rate hikes in 2018, so a September interest rate increase would open the door to a forecast-matching fourth hike in November or December.

In a deviation from the norm, the Fed will also be releasing economic projections for the US economy, which might cement USD/GBP exchange rate gains if they prove sufficiently optimistic.

After the dust settles from the US central bank meeting, the Pound might be able to regain any lost ground on Thursday’s Bank of England (BoE) speeches.

BoE Governor Mark Carney and Chief Economist Andy Haldane will both be giving speeches and could boost GBP demand if they point to a 2019 interest rate hike.

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TAGS: Dollar Pound Forecasts