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Pound to US Dollar Exchange Rate Gains Limited as Markets Digest BoE and Fed Decisions

Published: 18 Mar at 3 PM Tags: Pound Sterling, Dollar Exchange Rate, Currency Exchange, UK, Exchange Rates, Economy, Inflation, Pound Dollar Exchange Rate,

After trending lower for half of the week, the British Pound to US Dollar (GBP/USD) exchange rate has been attempting to climb since last night’s Federal Reserve decision. However, today’s Bank of England (BoE) decision did little to bolster Sterling higher.

Since opening this week at the level of 1.3921, GBP/USD has seen mixed movement. GBP/USD neared March lows earlier in the week, before rebounding last night and nearing March highs today.

Before the Bank of England policy decision, GBP/USD touched just below the key level of 1.40. However, GBP/USD has once again failed to hold above this key level, and at the time of writing after the BoE decision is trending in the region of 1.3945.

Pound and US Dollar investors digested the central bank developments of the past few sessions towards the end of the week.

Today’s Bank of England policy decision was the biggest focus for Pound investors this week. As expected, the bank left monetary policy frozen and took a cautiously optimistic tone about Britain’s recovery outlook.

Notably, the bank said that Britain’s restrictions could be lifted quicker than the bank had previously assumed. The bank overall signalled that its expectations for Britain’s economic performance had been outdone.

However, as the bank did not show a notable shift towards hawkishness, the Pound’s strength was limited. Investors were hesitant to keep buying Sterling following weeks of strong performance for the British currency.

Part of today’s higher GBP/USD was also due to losses in the US Dollar. Demand for the US Dollar has been softer since last night, when the Federal Reserve took a firmly dovish stance on the US economic outlook.

Markets had been speculating that the Fed could be pressured to become more hawkish. However the bank was firm that monetary policy would remain loose for some time to come.

As the US Dollar is a safe haven currency, expectations of a longer period of dovishness for the Fed made investors more hesitant to buy the US currency as investors were more willing to take risks instead.

US jobless claims data was a little worse than expected, which also weighed on the US Dollar today.

With most of the week’s most influential UK and US news published already, the Pound to US Dollar exchange rate will be driven as markets continue to digest central bank news into the end of the week.

Tomorrow’s UK consumer confidence and public borrowing data could also cause some late-week movement if it surprises investors.

Looking ahead into next week, it will be a busier week for data. UK job market, inflation and retail stats will give markets a better idea of how Britain’s economy has weathered the third coronavirus pandemic lockdown.

Key US data due next week includes durable goods and growth rate stats, so there will be plenty of notable figures for Pound to US Dollar exchange rate investors to react to.