Pound comeback as “Sell America” returns on Fed independence fears

The British pound staged a comeback on Monday as traders grow risk-averse following threats for the US Federal Reserve independence. A scarce economic docket in the UK shifted the focus to geopolitical developments and the dollar, which continued to soften as the “Sell America” trade is back into play.

Sterling rebounds as political pressure on the Federal Reserve dents the dollar, with GBPUSD trading at 1.3473, up 0.55%.

Over the weekend, Fed Chair Jerome Powell released a statement and commented in a video that “the US central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment.”

He said, the move “should be seen in the broader context of the administration’s threats and ongoing pressure,” and added that “the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

Consequently, the greenback plunged, as depicted by the DXY Dollar Index which measures the performance of the USD’s value against six currencies, down 0.35% at 98.79.

Although US President Donald Trump denied any knowledge of the investigation into the central bank, he constantly has been bullying the Fed Chair, due to the lack of reducing interest rates as Trump had expected.

Across the pond, some analysts argued that the reduction of fiscal and political risks in the UK are tailwinds for the pound, after Chancellor Rachel Reeves presented the budget in November.

Traders’ eyes are on the release of UK’s Gross domestic Product figures on Thursday and jobs data next week, which could determine the Bank of England’s path.

(Source: OANDA)