What impact will today’s US rate decision have on the currency market?

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The pound dropped to a new two-month low against the US dollar ahead of the Federal Reserve’s interest rate decision, but GBP might be safe from further losses.

What movement have we seen in the currency market?

The pound started the week pretty strongly. Despite dipping a bit on Tuesday (fluctuating between 1.13 and 1.14 against the euro, hitting a new two-month low of 1.2119 against the US dollar and losing roughly a cent against the New Zealand dollar) the pound was able to rally again ahead of the release of the UK’s employment numbers.

This morning GBP climbed by over 3% against the euro, Australian dollar and New Zealand dollar and recorded gains of more than 0.5% against the US dollar and Canadian dollar.

So, what happened?

On Monday, the announcement that Scottish National Party (SNP) leader Nicola Sturgeon intends to push for another independence referendum before the end of 2019 had little impact on the pound.

The British currency was also unshaken by the news that UK Prime Minister Theresa May now has the right to activate Article 50 and kick Brexit negotiations into action without having to give parliament more input over the eventual trade deal.

Tuesday’s pound shifts appear to have been a bit of a delayed reaction to this news, but Sterling was able to recover despite forecasts that today’s employment data would show a slowing in wage growth.

What should you be looking out for?

While the UK’s employment data is likely to have an impact on the pound in the hours ahead in light of concerns that stagnant wage growth could have a negative impact on the UK’s dominant services sector, the day’s big news is definitely the Federal Reserve interest rate decision.

The US central bank is expected to raise interest rates this evening, but the impact of the event on the GBP/USD exchange rate could prove to be minimal. As a rate hike has been expected for so long, some analysts think it’s strengthened as much as it’s going to ahead of the decision.

However, the pound could slide against the US dollar if the central bank indicates that another rate hike could soon follow. Hints of an adjustment in May could see GBP/USD return to its two-month lows.

The other event to watch out for today is the Dutch election. The latest polls have shown a significant decrease in support for Geert Wilders. A defeat for the anti-EU candidate would give the euro a boost, but a surprising victory would cause turmoil for EUR exchange rates.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers. 

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