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British Pound Talking Points
GBP/USD trades to a fresh monthly low (1.3602) ahead of the Kansas City Fed Economic Symposium scheduled for August 26 – 28 as a growing number of Federal Reserve officials show a greater willingness to taper the quantitative easing (QE) program.
Fundamental Forecast for British Pound: Bearish
GBP/USD appears to be on track to test the July low (1.3572) amid speculation for a looming shift in Fed policy, and details of a potential exit strategy may fuel the recent rally in the US Dollar as “economic growth was expected to remain strong over the second half of the year, supported by the further reopening of the economy, accommodative financial conditions, and easing of supply constraints.”
The minutes from the July meeting suggest the Federal Open Market Committee (FOMC) is on track to scale back monetary support as most participants “judged that the standard set out in the Committee’s guidance regarding asset purchases could be reached this year,” and the Fed symposium may offer clues for the next interest rate decision on September 22 as officials emphasize “the economy’s continued recovery as well as its progress toward the Committee’s maximum-employment and price-stability goals.”
However, Fed officials may merely attempt to buy time as “several participants emphasized that employment remained well below its pre-pandemic level,” and more of the same from Chairman Jerome Powell and Co. may produce headwinds for the US Dollar as the FOMC “generally judged that the Committee’s standard of ‘substantial further progress’ toward the maximum-employment and inflation goals had not yet been met.”
With that said, details of a potential Fed exit strategy may keep GBP/USD under pressure as it fuels speculation for an imminent shift in monetary policy, but the US Dollar may face headwinds if central bank officials endorse a wait-and-see approach ahead of its next meeting in September.
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong