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Increasing Odds of Fed Rate Cut Help GBP/USD

Last week’s high: $1.2780

Last week’s low: $1.2620

 

US Dollar Weakens as Markets Price Near-Certainty of 2019 Fed Rate Cut

The odds of the Federal Reserve cutting interest rates in the coming months continued to mount last week, limiting the strength of the US Dollar.

As May’s consumer price index fell short of forecasts, indicating a greater easing in inflation, the case for Fed monetary loosening picked up.

Although the CPI is not the Fed’s preferred measure of inflation this still left USD exchange rates on a weaker footing on Wednesday.

However, as market anxiety over Brexit picked up in response to the unfolding Conservative leadership contest the GBP/USD exchange rate failed to hold onto any particular gains for long.

Escalating global trade tensions also helped to buoy the safe-haven US Dollar, with the Trump administration continuing to issue the threat of tariffs against various trade partners.

 

USD Outlook: Impact of Fed Announcement May Prove Limited

As investors have already effectively priced in the impact of an imminent interest rate cut reaction to Wednesday’s Federal Open Market Committee (FOMC) meeting could prove limited.

Unless there is a significant shift in policymaker sentiment the US Dollar could largely shrug off the meeting.

However, increased signs of dovishness within the Fed may boost the GBP/USD exchange rate as markets gauge the odds of interest rates being lowered multiple times this year.

Confidence in the Pound, meanwhile, looks set to strengthen if the Bank of England (BoE) expresses continued cautious optimism at its latest policy meeting.

Signs that the BoE remains willing to tighten monetary policy could see GBP exchange rates trending sharply higher across the board, even in the face of lingering political anxiety.

 

Key Events

19th June

09:30   UK Consumer Price Index

19:00   US Federal Open Market Committee Rate Decision

20th June

09:30   UK Retail Sales

13:30   US Philadelphia Fed Business Outlook Index

21st June

09:30   UK Public Sector Net Borrowing

 

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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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