Pound awaits Fed decision

4 May, 2017

The British pound has come under pressure late in the European trading session today as the market awaits the latest interest rate decision from the US Federal Reserve.

At 4.06pm (GMT) the British currency was trading at $1.29000 against its US counterpart, down from $1.2937 in yesterday’s trading.

The Sterling strengthened earlier in the day after construction data hit the market above analysts’ expectations at 52.2, which was slightly above analysts’ expectations for a number of 53.1 and was attributed to a number of different sectors

 ‘April’s survey reveals a positive start to the second quarter of 2017, with a robust upturn in civil engineering activity helping to boost the construction industry. There were also more encouraging signs from the house-building sector, as growth recovered to its strongest so far this year. However, the performance of the commercial building sector remained subdued in the context of the past four years.’ Noted Tim Moore, senior economist at IHS Markit.

The good news was overshadowed by expectations of a bullish stance by the US Fed when the deliver a speech after informing the market of their rate decision.

It is widely expected that no changes in rates will happen; But Fed President Janet Yellen is expected to set the stage for further rate hikes in the coming months, which seems to have caused a sell off in the pound.

Some believe that the market is underestimating just how many times more the Fed will lift rates this year and many could get caught with their pants down,

"The big focus from a financial market point of view will be on the statement that the Fed makes and particularly how they view the softness in Q1 in the real sectors of the economy," Noted Credit Suisse's head of financial market analysis Joe Prendergast

"If they really emphasize this is temporary I think we will see a little bit of tightening expectation come back further into the market. They'll probably still tighten through this year a little bit more than the market is currently discounting, “he added.


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