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GBP/USD accelerates ahead of Fed rate decision

currency-newsGBP/USD accelerates ahead of Fed rate decision
The pound ticked higher on Tuesday, with markets appearing willing to shrug off growing no-deal Brexit concerns.

Sterling is struggling to extend this momentum this morning, however, with GBP/EUR flat at €1.0873 and GBP/USD subdued at $1.2882. GBP/CAD is muted at C$1.6878, while GBP/AUD and GBP/NZD slide to AU$1.7613 and NZ$1.9140, respectively.

Coming up today, the spotlight will be on the Federal Reserve’s latest rate decision. Will the changes to the Fed’s inflation framework alter the bank’s forward guidance?

What’s been happening?

The pound struck higher again during yesterday’s European trading session, with GBP investors remaining bullish despite the risks of a no-deal Brexit becoming greater after Boris Johnson's controversial Internal Markets Bill made it through the House of Commons.

The GBP bulls also seem unperturbed by the UK’s latest jobs report, in spite of unemployment rising to 4.1% in July and wage growth continuing to contract over the same period.

At the same time, the euro drifted lower on Tuesday, undermined by concerns that implementing new coronavirus restrictions in countries like Spain and Germany could limit economic activity in the Eurozone.

These concerns were not reflected in Germany’s latest ZEW surveys, however, with economic sentiment in the Eurozone’s largest economy continuing to improve, despite the threat posed by both the coronavirus resurgence and a messy Brexit.

Finally, we saw the US dollar undermined by an improving market mood yesterday as investors welcomed some upbeat Chinese data as well as more coronavirus vaccine optimism.

Tuesday’s weaker-than-expected US industrial productions figures also added to the pressure on USD exchange rates.

What’s coming up?

Centre stage for today’s session is the Federal Reserve’s latest interest rate decision.

While no policy changes are expected from the Fed this month, USD investors will be eager to see whether the recent change to the bank’s stance on inflation, allowing it to run hotter for longer, will impact the Fed’s future policy.

Many investors see this as opening the door to additional monetary easing, any hints of which could put pressure on the US dollar later this evening.

The pound, meanwhile, looks set to struggle today in the wake of the UK’s consumer price index after domestic inflation fell to a four-year low in August.

In the absence of any notable EUR data releases today we may see the euro continue to struggle as Europe’s battle against the coronavirus resurgence continues to draw the attention of investors.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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