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GBP/USD rallies to $1.39 as dovish Fed prompts heavy US dollar sell-off

Philip McHugh March 18th 2021 - 2 minute read

The US dollar experienced considerable selling pressure on Wednesday, plunging in response to the more dovish than expected Federal Reserve following its latest policy meeting.
Meanwhile, the pound is mostly rangebound at the start of today’s session, with GBP/EUR buoyed at €1.1686 and GBP/USD flat at $1.3968. GBP/CAD is stable at C$1.7316, while GBP/AUD and GBP/NZD hols steady at AU$1.7873 and NZ$1.9298, respectively.
Coming up today, the Bank of England (BoE) will be in the spotlight as it delivers its own rate decision.

What’s been happening?

The US dollar was well supported through yesterday’s European trading session, with the appeal of the ‘Greenback’ being bolstered as US Treasury yields struck a new 13-month high.
However, these gains began to unravel in the evening after the Federal Reserve struck a more dovish tone than expected, signalling that employment and inflation are some way off its goals, and therefore the next rate hike is still some distance away.
This pullback in the US dollar allowed the euro to advance late on Wednesday, having struggled to attract investors through the European session after the German Council of Economic Experts cut its 2021 domestic growth forecasts from 3.7% to 3.1% this year in light of elevated coronavirus cases over the past couple of months.
The pound, meanwhile, came under some pressure yesterday after the NHS warned that it faces a ‘significant reduction in weekly supply’ of coronavirus vaccines from the end of March.
This will see those under 50 wait another month before they start to receive the jab, something which GBP investors fear could delay the UK government’s reopening plans.

What’s coming up?

Centre stage today we have the Bank of England’s latest rate decision, in which the BoE is widely expected to leave its monetary policy untouched this month.
Instead, the focus will be on the bank’s economic outlook, with the pound potentially gaining some ground if policymakers appear mostly positive about the UK’s recovery in light of the government’s reopening plan.
Across the pond the spotlight will be on the latest US initial jobless claims. Last week’s figures are expected to report new claims continued to drop, which may extend some support to the US dollar.
Meanwhile, a speech from European Central Bank (ECB) President Christine Lagarde could provide fresh impetus for EUR investors this morning.

Written by
Philip McHugh

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