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Bets of Aggressive Fed Easing Leave USD Fluctuating

Last week’s high: $1.2592

Last week’s low: $1.2387

Pound to US Dollar Exchange Rate Recovers Thanks to Broad US Dollar Weakness

In the middle of last week, the Pound to US Dollar (GBP/USD) exchange rate briefly slumped to its lowest levels in over two years – since early 2017. This was caused by rising market fears that Britain’s next Prime Minister, likely to be Boris Johnson, would be more willing to embrace a no-deal Brexit outcome.

A no-deal Brexit is widely perceived by businesses and markets as being a worst-case scenario for Britain’s economic outlook, so these fears have kept pressure on the Pound.

However, thanks to some efforts from Parliament to prevent a no-deal outcome, as well as some strong UK retail data and a weaker US Dollar, GBP/USD recovered a good chunk of its losses.

Investors sold the US Dollar towards the end of the week, as speculation grew that the Federal Reserve could take a more aggressively dovish stance on US monetary policy during its policy decision at the end of the month.

Dovish comments from the usually-hawkish New York Fed President Williams made markets even more concerned that the Fed could be more dovish than expected, which led to late-week US Dollar weakness.

USD Outlook: Federal Reserve Bets in Focus

Next week, Pound investors are less likely to react to UK data and will focus on political and Brexit developments as the Conservative Party leadership contest comes to an end.

Unless there is surprising news that causes no-deal Brexit concerns to lighten though, the Pound will likely remain under pressure as fears persist.

As a result, the Pound to US Dollar exchange rate’s best chance to recover may be if upcoming US data disappoints investors and leads to fresh Federal Reserve interest rate cut speculation.

Markets are still uncertain over how much the Fed will cut US interest rates during its policy decision at the end of July. Bets of a 50 basis point rate cut could rise if upcoming US housing data, PMI projections, or trade stats disappoint investors.

Friday’s session could be the most pivotal of the week for GBP/USD, as key US Gross Domestic Product (GDP) growth rate data will be published.

 

Key Events

22nd July

11:00 UK CBI Business Optimism

11:00 UK CBI Industrial Trends Orders

13:30 US Chicago Fed National Activity Index

23rd July

11:00 UK CBI Distributive Trades

15:00 US Existing Home Sales

15:00 US Richmond Fed Manufacturing Index

24th July

14:45 US Markit PMI Projections

15:00 US New Home Sales

25th July

13:30 US Durable Goods Orders

13:30 US Wholesale Inventories

13:30 US Jobless Claims

14:00 US Kansas Fed Manufacturing Index

26th July

13:30 US Growth Rate

 

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To keep up to date with the US Dollar, visit the USD blog in our Currency News section.

Alastair Archbold
Foreign Exchange Manager

aja@fcgworld.co.uk

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