GBP/USD exchange rate stabilises as Fed says it will be ‘patient’

Chairman of the Federal Reserve Jerome Powell (Image: Elijah Nouvelage/Bloomberg via Getty)

This upswing in the GBP/USD exchange rate came in the wake of a speech by Jerome Powell in which the Federal Reserve Chairman appeared to strike a more dovish tone than he did in last month’s policy meeting.

Following the Fed’s decision to raise interest rates in December, the US central bank hinted that it would target up to two additional hikes in 2019.

However Mr Powell’s comments on Friday highlighted some potential downside risks facing the US economy as he suggested the Fed would remain sensitive to any signs of an economic downturn. 

Speaking at the American Economic Association’s annual meeting in Atlanta, Mr Powell said: “As always, there is no preset path for policy, and particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”

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At the same time, the pound is struggling against the majority of its other peers this morning following the publication of the UK’s latest car sales figures.

According to the Society of Motor Manufacturers and Traders (SMMT) sales of new cars fell 5.5 percent last year.

The SMMT attributed the decline to both a dramatic fall in diesel sales since the Volkswagen emissions scandal as well as UK consumers’ reluctance to spend on big ticket items in the face of growing Brexit uncertainty. 

Looking ahead, the GBP/USD exchange rate is likely to be hit by volatility this week as investors turn their focus back to Brexit ahead of the upcoming parliamentary vote on Theresa May’s withdrawal deal.

The PM’s deal still faces considerable opposition from MPs, with the pound potentially weakening if it looks likely that Mrs May could face defeat in next week’s vote, potentially paving the way for a no-deal Brexit.  

In the meantime however the release of the ISM non-manufacturing PMI may prompt the US dollar to soften later this afternoon if the US service sector mirrors the slowdown seen in the factory sector in December.

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