GBP/USD: Dollar Gyrates on Powell Testimony Release

The British pound is up against the US dollar on Tuesday afternoon following some well-received UK economic data. A pre-release of remarks that Fed Chair Jerome Powell will make in testimony to Congress weighed on the dollar.

GBP/USD was higher by 56 pips (+0.20%) at 1.2938 with a daily price range of 1.2895 to 1.2942 as of 2pm GMT. The currency pair found support at 1.29 for a second day, eventually moving beyond 1.295. The gains contribute towards weekly gains of +0.46%.

USD weak before the release of Powell’s testimony

Jerome Powell will tell lawmakers later that the current policy of the Federal Reserve is appropriate barring a material reassessment, echoing minutes from recent meetings. His comments on the possible impact of the coronavirus were being closely monitored and likely explain the weakness in the dollar after the pre-release of his statement. Powell said the Fed “is closely monitoring the coronavirus which could lead to disruptions in China that spill over to the global economy.”

Also an important factor for wider markets were going to be Powell’s remarks on the Fed’s latest round of asset purchases and action in repo markets. He said, “Treasury bill purchases and repo operations have been successful in providing ample reserves to the banking system.” He added “The Fed intends to transition away from the use of repos.”

The dollar has been performing well in recent week thanks to numerous signs that economic data is improving in 2020, especially relative to other parts of the world. However, the positive economic data should only translate to a stronger currency if the central bank takes typical steps to cool it down. It would appear from his remarks, that the Fed plans to keep low-interest rates in place, and take its time to stop asset purchases, both of which will keep monetary policy easy.

GBP rises thanks to better than expected GDP growth

Sterling rose even before comments from Jay Powell after data showing better than expected Q4 GDP growth. The upset happened in December because economists had been expecting a -0.3% decline due to the general election curtailing consumer spending. As it happened, the economy grew by +0.3% m/m in December.

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