Decline for GBP as USD awaits interest rate announcement

Currencies Direct August 26th 2016 - 2 minute read

Decline for GBP as USD awaits interest rate announcement

Strong retail sales announced earlier this month were not enough to prevent a slight decline in the British pound, ending the week on a lower value.

Elsewhere, attention has been fixed on the dollar, with today’s speech by Janet Yellen expected to provide information on interest rates. The Japanese yen is expected to react to this decision.

Pound slips after early confidence in the week

Although the British pound was doing well earlier this week, with a strong value against the euro and the US dollar, it has slipped back down in the last day. Earlier in the week, the pound hit a two-week high against the euro. However, this could not be sustained with the pound finishing the week on a lower footing.

Despite the UK’s sales figures doing better than had been expected – an increase of 1.4% from June to July – it was not enough to sustain the level of recovery that sterling had been experiencing.

Experts think that this is the result of the quantitative easing which the Bank of England has implemented to combat the economic shock brought on by June’s Brexit decision. The process has the effect of lowering the value of currency through increased supply and driving down yields, which then decreases foreign investment in the UK.

Euro experiences small gains

On Thursday, the euro saw small gains against the pound, following the sterling’s recent rise. There was also an increase in the value compared to the US dollar. Experts have said that this is the result of strong final GDP data coming from Spain. Although business confidence in Germany fell as a result of the Brexit referendum, figures released earlier this month revealed that the country’s economy grew 0.4% in the second quarter. This is double what was expected. It remains to be seen whether the euro will be able to sustain this increase in value.

All eyes on Yellen

This week the world’s focus has been on the US dollar, with Federal Reserve Chair Janet Yellen to give a speech later today. Many experts are expecting her to announce when the USA might increase interest rates but this is not a certainty.

According to traders, if Ms Yellen indicates that interest rates will be raised in September, this will see the dollar raise in value against the pound and the euro.

In the last few days, the USD has dipped in value but is still set for a marginal gain this week on the whole. This is thanks to demand for new manufactured capital goods and a drop in unemployment benefit applications.

Yen reports modest gains against US dollar

The Japanese yen saw little change against the major currencies this week but did report a modest gain against the dollar in anticipation of Ms Yellen’s speech.

It has been agreed by analysts that the yen is one of the currencies most vulnerable to any interest rate decision by the USA. It could be liable to a drop if the Fed announces that rates will be hiked.

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