Tuesday, 27 October 2015

GBP/USD exchange rates fall after poor GDP reading

Good afternoon,

The pound lost ground against the dollar during today's session following a weaker than forecast UK Gross Domestic Product (GDP) reading.

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The UK's economy slowed during the third quarter of this year following disappointing results in the manufacturing and construction sectors. Figures released by the Office for National Statistics (ONS) showed growth in the UK had fallen to 0.5%, down from 0.7% in Q2. 

The reading was worse than predicted by analysts who had anticipated the GDP figure coming in at 0.6%. It meant the pound started to lose ground against the U.S. dollar, with the mid-market price settling around $1.53 by the session close.

Could the Federal Reserve take action?

Tomorrow evening the U.S. Federal Reserve will announce their latest interest rate decision. Many within the market had expected the central bank to raise their benchmark rate six weeks ago but following the events in China the Federal Open Market Committee (FOMC) decided against acting in September.

Since then the economic numbers coming out of the U.S. have not been great and it would seem the market has priced in a rate hike coming in December. I think it is unlikely the FOMC will take any action tomorrow as the U.S economy has slowed in recent weeks.

However if the Federal Reserve hint towards a rate rise by the end of the year we can expect some volatility as it is likely we will see the dollar strengthen across the board.

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