BEST Pound Dollar and Pound Euro Exchange Rate Levels of 2014 as USD Suffers post-FOMC Slump

The following mid-market levels are on offer at the time of update:

• The pound to euro exchange rate is 0.06 pct higher than at last night's closing rate at 1.2531.
• The pound to dollar exchange rate is 0.11 pct higher at 1.7059.
• The pound to Aus dollar rate is 0.03 pct higher at 1.8140.
• The pound to NZ dollar is 0.11 higher at 1.9575.

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Best pound dollar exchange rate of 2014 on offer

We have have seen the GBP/USD break the 1.70 level on a number of occassions, however, a sustained stay here has been hard to come by.

The US dollar and government treasuries have slipped back following the June FOMC Minutes - markets were hoping for signals that the Fed would accelerate the ending of their quantitative easing programme. However, the Bank is sticking to its guns and stearing a steady course.

"US yields declined post-meeting and the USD was marginally lower. However, with no substantial changes to policy, we doubt USD sentiment will materially change," say Lloyds Bank.

Euro pound exchange rate corrects from oversold corrections

Those looking to buy euro's with their pound sterling have recently been enjoying the best exchange rate levels in over a year.

But, we have been warning at the same time that the euro to pound exchange rate (EUR/GBP) is oversold and that a correction higher was due.

The correction is now playing itself out and Ipek Ozkardeskaya at Swissquote Research reckons the move could run deeper:

"The oversold conditions in EUR/GBP sent the pair towards 0.80000, yet offers (& option related expiries) keep the upside capped at 0.80000/0.80500 region. The RSI now stands at 22%, the 30-day lower BB at 0.79996. We believe that deeper correction is needed at the current levels, while keeping our mid-term call on the bearish side."

Outlook for the pound dominated by Bank of England

Next up on the GBP's agenda are the BoE minutes which are predicted to reinforce recent hawkish comments from Mark Carney.

"What's interesting about the BoE is that in May when the Quarterly Inflation Report was released, they went out of their way to avoid giving into the market's speculation for earlier tightening and a month forward, Carney is now talking about raising rates sooner.  So the change must have occurred at the June monetary policy meeting," says Kathy Lien at BK Asset Management.

The minutes will provide important insight on what drove the shift in stance especially given the relatively muted improvements in economic data.

"If the minutes indicate that a rate hike is coming, GBP/USD will find itself trading firmly above 1.70, but if there is any ambiguity, the rally in sterling will fizzle," says Lien.

Pound dollar exchange rate outlook: FOMC dominates the horizon

The pound dollar exchange rate (GBP/USD) has been offering the best exchange rate levels in years as of late with 1.7 being on offer once again. However, expect volatility to rise with the Federal Reserve's monetary policy decision looming ahead.  

The Fed is widely expected to taper asset purchases by another 10 billion.  

"However with the unemployment rate having fallen to the top of the central bank's 6.1% to 6.3% Q4 forecast (it was 6.3% in May), the Fed will find themselves in the uncomfortable position of adjusting down their unemployment forecast to the 5 handle.  Their inflation forecast could also be revised slightly higher," says Lien.  

If these changes are made, Janet Yellen will need to provide an explanation that convinces the market they hasn't gotten any closer to tightening.

Australian dollar under pressure

Overnight on the currency front, the main news was the weak Aussie dollar.  

It fell against all its major peers after the RBA published minutes of its latest meeting indicating low rates for longer.  The Aussie was down against the dollar 0.6% trading around 0.9346 at 0835 in London.  

Against the Yen the Aussie was down 0.45% and it was off 0.49% versus the Euro.  The Dollar was up against all its major peers ahead of US inflation and construction data due out today.

Market snapshot

Sentiment in Asia has been subdued on fears of persistent disruption to oil supplies from Iraq and the escalation of the Russia-Ukraine dispute.

NJA currencies have mostly weakened against the USD today, while bond and equity markets are mixed.

Japanese equities rallied in response to further details of Abe’s “third arrow” reforms, which include encouraging the government pension fund to hold a greater proportion of domestic equities.

High-yielding EM currencies such as the INR and IDR have been notable underperformers. The AUD weakened considerably after the RBA minutes were more downbeat than expected and the central bank indicated its frustration with the strong currency.

Iraq concerns have kept oil prices close to their recent highs.

While much of Iraq’s vital energy infrastructure and fields are in Shia-dominated southern Iraq, the negative news suggests the Iraqi government will have trouble controlling the situation.

In Europe, Russia cut the natural gas supply for Ukraine for the first time since the start of the crisis between the two countries this year.