Pound Consolidates Against US Dollar, Fed Fires Starting Gun to Interest Rate Rises
- Written by: Gary Howes
The pound to dollar exchange rate suffered fresh declines on news that the US Federal Reserve will soon raise interest rates.
The GBP to USD conversion is fighting to arrest its recent downtrend that saw GBPUSD break through the 1.53 support zone at one stage.
Sterling has stabilised heading into the weekend however, "this short term move higher will primarily be heading for the recently broken flag floor, which now should act as firm resistance at 1.5360. From there the decline is thought to continue with next a go at the very important 1.5201 support," says Anders Soderberg at S.E.B.
The technical outlook favours more dollar strength with the continuation of a series of lower highs and lower lows forming on the daily chart.
However, we join those commentators who believe that declines will not be severe, indeed a continuation of the 2015 range looks most likely.
"The Stochastics are still falling and the RSI is also on the drift lower too. I am still not of the opinion that this is a huge sell-off though (I would have thought that yesterday’s selling pressure would have been greater than it was on the Fed announcement if the market was to be going significantly lower," says a currency brief from Hantec Markets.
The slide has accelerated thanks to the hawkish Fed statement released on the 28th of October.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.335▲ + 0.18%12 Month Best:1.3789 |
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| 1.2896 - 1.295 |
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December Rate Hike Chances Now a 50%
After months of stop-start communication from Janet Yellen and her decision-making committee, higher rates are nigh.
It was the statement released alongside the decision to keep interest rates unchanged that got currency traders buying dollars.
It was noted that concerns over a global economic slowdown impacting the US economy was absent as an excuse to delaying rises over coming months.
The probability of a December rate rise is now just below 50% according to a Bloomberg tracker of rate expectations. Ahead of the meeting the probability was a mere 26%.
So while the Fed has left the door open to delay its first rate hike even further, "if things turn out to be weaker than expected, the statement supports our view that FOMC is on track to raise rates at its upcoming meeting in mid-December. We continue to expect a 25bp hike," says Dr. Harm Bandholz, Chief US Economist with UniCredit Bank in New York.
This short term move higher will primarily be heading for the recently broken flag floor, which now should act as firm resistance at 1.5360.
From there the decline is thought to continue with next a go at the very important 1.5201 support.
