– Written by
Frank Davies
STORY LINK Pound-to-Dollar Forecast: Powell Legal Row Undermines USD Support
The Pound to Dollar exchange rate has rebounded above 1.3450 after finding support near 1.34, as the US currency weakened sharply following renewed concerns over Federal Reserve independence.
Legal action involving Fed Chair Powell has unsettled markets, raising the risk of further volatility as investors reassess the outlook for US monetary policy.
GBP/USD Forecasts: Above 1.3450
The Pound to Dollar (GBP/USD) exchange rate found support just below 1.3400 on Friday and has rallied to above 1.3450 on a sharp dollar retreat amid fresh fears over an attack on Fed independence.
Volatility is likely to remain elevated in the short term given multiple risk elements.
The US inflation data is due for release on Tuesday, although the Fed debate and geo-political developments are likely to dominate
According to UoB; “We will maintain our negative GBP view as long as it holds below the ‘strong resistance’ level, currently at 1.3475.”
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The US currency has been damaged by legal action against Fed Chair Powell while it has not, so far, gained significant support from geo-political concerns with some evidence of a sell-America narrative gaining hold again.
On Sunday, Fed Chair Powell stated that the Department of Justice had served the Fed with subpoenas threatening criminal indictment over his testimony relating to building cost overruns.
In a recorded statement, Powell then stated that the testimony and renovation costs are “pretexts”, and he views the threat of criminal indictment as an attack on the Fed’s independence.
MUFG commented; “The repeated attacks on the Fed’s independence to satisfy President Trump’s desire for lower rates continues to pose downside risks for the US dollar and supports our forecast for a weaker US dollar.”
Inevitably, there will be push backs from the central bank and some politicians
MUFG added; “However, it could backfire on President Trump if Fed officials dig in and keep rates on hold as an act of defiance to highlight the Fed’s ongoing independence in setting policy. It is more likely now that Chair Powell will stay on as a governor when his term as chair ends helping to curtail President Trump’s influence over setting policy.”
According to Ray Attrill, head of FX strategy at National Australia Bank; Powell has had enough of the carping from the sidelines and is clearly going on the offensive.”
He added; “This open warfare between the Fed and the U.S. administration – and to the extent that you take Powell’s comments at face value – it’s clearly not a good look for the U.S. dollar.”
ING considers that the bond market will be a crucial element in judging whether there is a “sell America” narrative and noted; “Treasury futures have steadied this morning, and that is the most important signal markets aren’t ready to price in a loss of Fed independence just yet, either on the view that Powell will indeed remain firm in his policy views (as he’s pledged to), the FOMC won’t be heavily affected, or that the DoJ subpoenas aren’t likely to lead to an indictment.”
Kyle Rodda, senior market analyst at Capital.com commented; “This should be positive for the U.S. dollar but we haven’t seen any upside there yet.”
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TAGS: Pound Dollar Forecasts
