Pound US dollar exchange rate volatile as Fed raises interest rates

The pound traded in a wide range against the US Dollar yesterday as the Federal Reserve’s rate hike rocked markets.

Sterling appears buoyant this morning however, with GBP/EUR steady at €1.1076, GBP/USD edging up to $1.2659 and GBP/CAD climbing to C$1.7072, while GBP/AUD and GBP/NZD both accelerate, striking AU$1.7808 and NZ$1.8784 respectively.

In focus today will be the Bank of England’s latest rate decision, with GBP exchange rates potentially strengthening if the bank signals it may accelerate the pace of rate hikes in 2019.

What’s been happening?        
                                              
The pound stalled during yesterday’s trading session following the publication of the UK’s latest CPI figures.

Data published by the ONS revealed inflation slowed to a 20-month low in November, leaving markets to speculate on whether this may be the start of a persistent downtrend and how this may impact the BoE’s rate decisions in 2019.

This mattered little against the US dollar however, with movement in the GBP/USD exchange rate instead being dominated by the Federal Reserve’s final rate decision of 2018, which saw the pairing slump as the Fed struck a more aggressive tone than expected with its forward guidance for 2019.

Meanwhile the GBP/EUR exchange rate weakened on Wednesday as sentiment in the euro was lifted by the announcement that Italy had officially settled its budget dispute with the EU and would avoid any disciplinary measures from the European Commission.

What’s coming up?

Looking ahead, the Bank of England’s (BoE) rate decision is likely to be centre stage throughout today’s session.

While no policy changes are expected from the bank this month, the BoE’s forward guidance for 2019 is likely to be closely watched for any hints that the recent uptick in wage growth could prompt a more aggressive pace of monetary tightening next year.

Potentially supporting Sterling throughout the morning will also be the release of the UK’s latest retail sales figures as economists forecast sales growth will have rebounded in November.

Meanwhile, the US dollar may move lower later this afternoon, should the latest Philadelphia Fed Manufacturing Index mirror a drop in the New York index earlier this week and fuel further speculation that the sector is slowing.

Finally, the absence of any notable Eurozone data may result in the euro struggling throughout the second half of the week as investors remain focused on it peers.