Dollar Flat Ahead of Fed Policy Decision

Retail Sales including Auto Fuel missed the market consensus of a 3.8% increase in August with the actual result only reaching 3.7%. Falling food prices were the cause of the slower-than-expected growth, although rising clothes prices saw retail sales avoid a larger declination.

The Pound Sterling to Euro (GBP/EUR) exchange rate softened by around -0.2% on Thursday afternoon. Recent labour market data showed conditions have improved, and accelerated wage growth ought to provide support for extended retail sales growth.

‘Small stores were particularly boosted in August by sales of school uniforms, while most of the growth in large stores was coming from online, ‘ Kate Davies, head of retail sales statistics at the ONS said.

In spite of the fact that the European Central Bank (ECB) Economic Bulletin was dovish in tone, the single currency appreciated versus many of its closest currency peers on Thursday. If investors believed a US interest rate increase was imminent, the Buck would not have endured such a sustained bout of selling pressure.

One notable exception was the British pound, which soared against the dollar and the euro after U.K. labor data came in much stronger than forecast.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3704. Canadian Manufacturing Shipments also rose by 1.7% on the month in July, smashing the 1.1% forecast. The Pound Sterling US Dollar exchange rate began yesterday’s European session lodged in the 1.5300s but the pair was changing hands at well above the 1.5500 GBP USD threshold by the time the New York session got underway.

Analysis by French bank BNP Paribas shows that a steady erosion of bets for more appreciation since March has left positioning on the U.S. currency flat, meaning relatively few longer-term players will be forced to sell if the Fed does not deliver a rise.

“The Fed’s decision and economic projections released at the same time will give traders a clearer view on when and how many times the US could raise rates in the next six months”, said Joe Manimbo – senior market analyst at Western Union Business Solutions.

Looking ahead, a complete absence of British economic data on Friday will see the Pound trading subject to the outcome of the FOMC rate decision.

Given the extent of the importance of the FOMC rate decision and its influence on the currency market as a whole, the Pound Sterling to Indian Rupee is likely to fluctuate considerably upon the announcement of the decision.

The Pound Sterling to Indian Rupee (GBP/INR) exchange rate advanced to a high of 103.1900 during Thursday’s European session.