Pound Sterling Powers Higher on Exchange Rate Markets as US Dollar Hits Post-FOMC Slump, Euro is a Passenger

The FOMC minutes were the main market event of the past week with the result being a broadly weaker USD.

GBP: Pound sterling exchange rates today

Sterling saw some profit-taking in the preceeding week, however following some decent data we see the unit trading stronger at the start of a new week:

• The pound to euro exchange rate is 0.19 pct higher than seen at Friday night's close having reached 1.2535.
• The pound to dollar exchange rate is 0.12 pct higher at 1.7034.
• The pound to Canadian dollar exchange rate is 0.16 pct higher at 1.8281.

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Serling soared above $1.7030, a fresh August 2009 high, after the dovish Fed contrasted recent hawkish intimations from the Bank of England.

"As a result, the BOE seems firmly on course to raise borrowing rates ahead of the Fed, which would give a yield advantage to U.K.-denominated investments," says Joe Manimbo at Western Union.

Mixed news on the U.K. consumer largely offset, resulting in a muted impact on the pound. Headline retail sales fell 0.5% in May, as expected. But another measure of consumer spending, from the CBI, brightened to 11 in June from zero in May.

EUR: Euro exchange rate complex today

• The euro dollar exchange rate is 0.02 pct up on a day-to-day basis having reached 1.3611.
• The euro pound exchange rate is 0.07 pct lower at 0.7981.

Refering to the EUR/USD, "the currency pair remains confined between 1.35 and 1.36. Whether 1.35 gives way will depend on the dollar's reaction to the FOMC rate decision, " says Kathy Lien at BK Asset Management.

Furthermore, "this has and will continue to be a quiet week for EUR/USD, which has found support above 1.35.  Higher lows point to the possibility of a further bounce towards 1.3650."

USD: The US dollar exchange rate complex today

The FOMC meeting was the highlight of this week's NA trading session, the net result has been a softer US dolla and Treasuries; investors were disappointed by the Federal Reserve's monetary policy announcement.

The Fed tapered asset purchases by $10 billion, lowered their unemployment rate forecast and raised their inflation forecast but the changes were small especially when compared to the sharp cut to their 2014 GDP outlook.

For currency markets, it wasn't so much what the Fed said that drove the dollar lower but rather what they didn't say.

Janet Yellen acknowledged the improvements in the economy, indicated that the central bank is discussing tools for normalising monetary policy and said that there would be a considerable period of time between the end of QE to the first rate hike.  

When pressed for a definition of "considerable time," she refused to provide any details, saying only that there is no formula for what considerable time means.  

"In other words, unlike other central banks that have recently expressed their desire to become more active, the Fed remains comfortable with their current course and has no desire to alter the market's expectations," says Lien.