As the US dollar fell on the negative ground ahead of the U.S. presidential election, the British pound nudged higher after the opening bell on Wednesday. The stability of the currency’s strength greatly depends on the outcome of the Fed meeting later today and the upcoming benchmark interest rate announcement of the Bank of England.
Central Banks’ Meeting
Last September, the Bank of England’s Monetary Policy Committee decided to maintain its monetary rates at 0.25 percent and the inflation target at 2 percent. Voting unanimously, the MPC decided to continue the latest monetary policy to sustain growth and employment stand of the country. Further, the bank also left the UK bond purchase program of £60 billion as it aims to take the total stock of these purchases to £435 billion.
The decision of the bank last month was highly influenced by the United Kingdom’s vote to leave the European Union, which had lowered the path of economic growth. On its written report, the BOE indicated that “The Committee had announced a package of policy measures aimed at reducing the amount of spare capacity in the economy and thus ensuring that inflation returned sustainably to the target over time.”
During that time, the Committee admitted that they only had a limited amount of data to inform its assessment of how the vote to leave the EU would affect the underlying and medium-term prospects of the UK economy. As seen in the image below, the sterling drifted lower after the announcement of the central bank. As the interest rate remains unchanged, the chances for the currency to appreciate lessens. Adding to this, the renewed concerns over the Brexit negotiations even drove the currency lower.
As of today, there is no firm indication over the next decision of the BOE, however, Governor Mark Carney’s ability to make valuable decisions is questioned as he takes another year as the head of the bank. Originally, Carney was offered an eight-year contract, but he signed up for five. Speculators pointed him as one of the proponents of Bremain after his statements prior to the conclusion of the Brexit vote.
Currently, the investors are looking for significant hints on the health of the British economy amid the political and economic uncertainties. Behind these concerns, the currency still moved higher, hitting 2-week high in the session earlier. Clearly, the weakness of the greenback pushed the currency higher and not the monetary stance of the country, itself.
As of 15:19 UTC, GBP/USD opened at 1.23139 and settled at 1.23139, comparatively higher against the previous close of 1.22422 on the other day. The pair had a session high of 1.23528 and a session low of 1.23028, advancing almost 0.70 percent in the session. If the uptrend momentum persists, the pair may likely find support at 1.22266 and resistance at 1.23917 at the end of the session.
Further, the strength of the currency was reinforced by the report of the research group Markit. According to the date released to the public, the UK construction purchasing manager’s index jumped 52.6 in October, brushing off the expected decline of 51.8 by most of the economists. The information could have caught the attention of the investors as it showed the current business condition in the construction sector in the British region.
Meanwhile, the Federal Reserve had resumed its two-day policy meeting and the greenback edged broadly weaker, marking its 3-week lows. The central bank of the United States is expected to keep its rates unchanged and will push for a December rate hike, as the bank seeks for more stable growth in the economy and as it joggles the possibilities before the US presidential election. Supporting this forecast, the US non-farm private employment only increased 147,000 in September, far from the forecasted 165,000. The tone of the US economy remains blurry at the moment, thus, no rate hike might happen at the end of its meeting.
FSMNews is designed to offer timely market news about commodities, stocks, financial, economy, technology, consumer products and foreign exchange. With a free subscription, there’s no need to struggle to find efficient ways to pick up fresh market hints. FSM News lets you stay on top!