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Pound (GBP) ?Overvalued?; US Dollar (USD) Falls Ahead of Fed Meeting

Published: 29 Jul at 11 AM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, South Africa,

Pound (GBP)

In a quiet day by way of data yesterday, Tuesday will see Mortgage Approvals, Net Lending Secured on Dwellings and Net Consumer Credit data published. The Pound (GBP) has been trading strongly in the currency market, and fears are becoming evident that Sterling is overvalued which could cause problems for the balance of the UK economic recovery. The International Monetary Fund (IMF) has recently stated that the overvaluation of Sterling is approximately 10%. Monday’s IMF report said: ‘Further demand rebalancing is needed: net trade has made only a modest contribution to the recovery, and the real exchange rate is moderately overvalued.’ The Pound is currently trading at 1.6974 against the US Dollar (USD).

Euro (EUR)

The Euro (EUR) is presently trading at 1.3433 against the US Dollar (USD). The US eagerly anticipates the Federal Reserve’s Federal Open Market Committee (FOMC) meeting on Wednesday, which has caused the ‘Buck’ to weaken against the Euro as speculation circulates that the second quarter for the US economy failed to be as fruitful as expected. Forex expert Jeffert Halley commented: ‘The Euro’s fate will all be about the FOMC.’

US Dollar (USD)

After a recent rally the US Dollar is currently trading lower in anticipation of the Federal Open Market Committee (FOMC) meeting on Wednesday, which investors are concerned will disappoint previous expectations of the rebound of the US economy in the second quarter. An expert in the field Vassili Serebriakov stated: ‘We should expect a rebound in the second quarter, but we don’t think the rebound is going to be as strong as the market expects.’ The US Dollar is trading at 0.5890 against the Pound (GBP), whilst also trending at 0.7445 against the Euro (EUR).

Canadian Dollar (CAD)

Tuesday sees the Canadian Dollar (CAD) trading at 0.9257 against the US Dollar (USD). The Canadian Dollar closed slightly higher on Monday as the currency market awaits Wednesday’s US Federal Open Market Committee (FOMC) meeting which will discuss all aspects of the US monetary policy. The most influential data for Canada this week will be released on Thursday by way of Gross Domestic Product figures which are currently forecast to rise.

Australian Dollar (AUD)

The Australian Dollar (AUD) is facing speculation regarding interest rates in Australia. Industry expert Phil Moffitt commented: ‘The game plan has been the RBA to hold rates stable, and accept the currency is overvalued, in anticipation of the Fed moving [to lift interest rates].’ This week will prove an interesting week for the US Dollar as the Federal Open Market Committee (FOMC) convenes to discuss monetary policy. If the Federal Reserve proves hawkish in their remarks it could push the ‘Aussie’ lower. The Australian Dollar is presently trading against the US Dollar at 0.9396.

New Zealand Dollar (NZD)

The New Zealand Dollar (NZD) has fallen this week following statements from the Prime Minister of New Zealand John Key commenting that the ‘Kiwi’ was overvalued. Furthermore, prominent dairy company Fronterra has announced that it’s lowering its milk payout. Speculation has been rife amongst economists surrounding the price cuts; however Fronterra lowered rates further than anticipated. Foreign exchange expert Tim Kelleher commented: ‘We’re talking about a 20-25% drop in farmer returns from a year ago.’ The result of the price cuts will become evident over time; however this could damage the New Zealand economy significantly and bring the commodity currency down. The New Zealand Dollar (NZD) is currently trading at 0.8513 against the US Dollar (USD).

South African Rand (ZAR)

The South African Rand (ZAR) has suffered severe volatility this year with a five month platinum mining strike followed by a month long metal worker’s walk out. Monday brought more optimism to the South African economy as rumours that the wage deal has been accepted began to spread. Representatives from NUMSA announced that the strike is over and that wage deals had been unanimously accepted; however Tuesday has seen statements from some employers claiming that they refute the offer. An expert in the field Cheslyn Francis stated: ‘The resolution would indicate some faith in the South African economy.’ The US Dollar is trending at 10.6050 against the South African Rand.
As of Tuesday, 29th July 2014, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.2638, GBP USD exchange rate was 1.6946, GBP AUD exchange rate was 1.8056, GBP NZD exchange rate was 1.9909, GBP CAD exchange rate was 1.8387, and GBP ZAR exchange rate was 17.9745.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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