The Fed Backed USD Gains Value As The GBP Further Weakens

Published on: 07/20/18 10:47 AM

Category: Uncategorised

The forex charts in mid-July saw the US dollar further appreciate in value as its counterpart, the Great Britain Pound (GBP) weakened. Both have maintained their respective gain and loss positions in the recent past with the dollar seemingly taking advantage of trodden GBP. But what are some of the factors contributing to the reported performance of the two great currencies and what does it mean for the forex market in the short and long runs?

What is ailing GBP?

Since Brexit reports surfaced and long after the vote, the GBP has consistently taken a beating in the forex markets. Tensions remain high concerning the future of the currency even as it tries to position itself away from the European Union umbrella. Economic uncertainties have played a significant role in the weakening of the great currency. Most recently and the cause of the recent GBP market stemmed from a short on the returns expected from the 2-year UK government bonds.

Speculations that the UK Prime Minister, Theresa May, might end up facing defeat at a crucial Brexit vote on 18 July did little to rectify the damage. The nation got whiff of a possibility of the labor party rebels supporting a proposal by the Conservative’s that seek to force the UK into a customs union with the European Union should the government fail to close significant trade deals by 21st Jan 2019.

Factors favoring the USD

The greenback has enjoyed an open day within the forex markets, and this has seen it shoot in value and maintain considerable high performances throughout July. And apart from taking advantage of the embattled GBP, two significant reports at home helped it consolidate its market lead. In the first instance, the currency received a massive boost from reports of the favorable performance of the government bonds. This uplift would also see the S&P 500 close the day with a 0.40% increase from previous days performance, the highest recorded since February.

However, the most significant news for the USD would come from the Federal Reserve report indicating that the government wasn’t ready to interfere with the market. In this report, the Federal Reserve Chair Jerome Powell stated that his board would avoid the adoption of protectionist policies that hurt economies and advocate for healthier open trade.

The report would also touch on the aspect of steady employment rates and average wages that helped put a brake on inflation while hinting that the government planned to increase its spending on the economy in the next 2-3 years. The chair would further inspire market confidence by stating that there is no bad blood between the US and EU.

Bottom line

The positive economic news from the Federal Reserve and the government bonds performance is enough to help the USD maintain a firm grip of the market. On the other hand, the outcome of the upcoming vote will determine whether the GBP bounces back or not.