Wednesday 15 March 2017

The pound gains against the dollar, but for how long?

Today has seen the pound move off of the eight week low we witnessed yesterday, with
the GBP/USD cross rising to $1.2250 in the early hours of this morning.

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The pound received a boost after Britain's Scottish minister David Mundell stated it would be impossible to have a decisive and legal independence referendum in Scotland in the timeframe laid out by Nationalist First Minister Nicola Sturgeon.

As I mentioned in one of my previous posts, Sturgeon wanted a second referendum to be held in Autumn of 2018 or Spring 2019. However, Mundell told Scotland's Herald newspaper that "It would be impossible for people in the timescale suggested by Nicola Sturgeon to make a reasoned view, and therefore, have a legal, fair and decisive referendum.

GBP/USD graph




Can the pound hold onto the gains?


The next couple of hours could bring some heightened volatility for the GBP/USD cross. At 1800 (GMT) the Federal Reserve will announce their latest interest rate decision, which will be followed at 1830 by a statement from Fed Chair Janet Yellen.

It is widely expected the Federal Reserve will announce another rate hike this evening. In my opinion the rate rise has probably been priced into the price of the dollar already, and if we are to see any reaction in the currency markets it will come during Yellens speech.

Investors will be listening closely for clues about the pace of future hikes, and if Ms Yellen hints at raising interest rates quickly then we could see the dollar benefit from increased investment flows in to the U.S.

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