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USD/GBP Weaker As Fed Decision Looms

Published: 18 Sep at 5 PM Tags: Euro, Dollar, Pound Sterling, America, Eurozone, USA,

After what feels like months of waiting, the Federal Open Market Committee announcement is just hours away.

By 19:30 GMT the world will know whether the Fed will taper stimulus, and how much it plans to trim easing by.

Investor anxiety regarding the decision has led to market volatility over the last few days, and the US Dollar has posted notable declines against peers like the Pound.

After US housing starts and building permits data failed to meet expectations the ‘Greenback’ was trading in the region of an eight-month low against the Pound.

Rather than climbing by 2.3 per cent in August, month-on-month, as forecast, housing starts advanced by 0.9 per cent.

Meanwhile building permits dropped by 3.8 per cent in August, significantly more than the decline of 0.4 per cent economists expected.

While this could be construed as the latest in a string of disappointing US data releases, economist David Sloan asserted that while housing starts seem to have ‘lost momentum [...] we see it as a temporary slowdown. Higher rates are a restraint on the housing recovery, but won’t derail it.’

As much of the tapering expectation has been priced into the market already, movement may be limited if the Fed reduces easing by the 10-15 billion Dollars predicted. However, if the Fed is especially dovish, surprisingly hawkish, or tapers stimulus by more than anticipated, fluctuations are likely.

As currency strategist Richard Franulovich comments; ‘A lot of people are putting a lot of weight on what the Fed is forecasting for the unemployment rate and the Federal Fund rate in 2016’.

As it stands the US Dollar is trading in the region of a five-week low against the Yen.

Despite posting a modest gain against the Euro the ‘Greenback’ remains within touching distance of a 3-week low.

Against the Pound the US Dollar is trading in the region of 0.6265
As of Wednesday, 18th September 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1936, GBP USD exchange rate was 1.6125,
Patrick James About Author: (278 Posts)Patrick completed his economics degree just as the global financial crisis struck in 2008. In the intervening years Patrick has made his mark, climbing to a prominent position within a large financial services provider. As part of his role Patrick uses his expertise to advise companies of the best ways to safeguard against currency risk.

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