GBP/USD Exchange Rate Consolidates Gains on Fed Rate Cut Expectations
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning, after roaring higher yesterday on the back of some dovish chatter from the Federal Reserve.
At the time of writing the GBP/USD exchange rate is trading at $1.2515 this morning, with the pairing virtually unchanged from this morning’s opening rate.
Dovish Fed Speak Weakens the US Dollar (USD)
The US Dollar’s (USD) bull run against the Pound (GBP) through the first half of this week, came to an abrupt halt yesterday, with USD/GBP relinquishing most of the sessions gains on the back of some dovish chatter from the Federal Reserve.
Speaking on Thursday evening New York Federal Reserve President, John Williams urged central bankers to ‘act quickly’ to tackle slowing economic growth.
‘It’s better to take preventative measures than to wait for disaster to unfold. When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.’
These were followed by some notable dovish comments from Fed Board of Governors Vice Chair Richard Clarida in an interview with the Fox Business Network
‘You don’t have to wait until things get so bad to have a dramatic series of rate cuts, you don’t want to wait until data turns decisively if you can afford to.’
The comments were interpreted by markets as a strong hint that the Fed may pursue some aggressively rate cuts this year.
CME Group’s FedWatch Tool now places the odds of a half point cut this month at just over 50%, up from around 20% before Williams’s comments.
Pound (GBP) Muted as UK Public Deficit Swells
At the same time, the Pound (GBP) has been forced to give back some ground against the US Dollar (USD) this morning following the publication of the UK’s latest public borrowing figures.
According to data published by the Office for National Statistics (ONS), the UK government was forced to borrow £7.2bn in order to balance the books in June, compared with 3.8bn in May.
This suggests that the UK’s public finances aren’t quite as strong as the government had hoped going into Brexit, the prospect of which unnerved some GBP investors this morning.
GBP/USD Exchange Rate Forecast: Deterioration in Consumer Sentiment to Dent the US Dollar?
Coming up later this afternoon the University of Michigan will publish its latest survey of US consumer confidence.
This may see the Pound to US Dollar (GBP/USD) exchange rate punch higher again this afternoon, with the sentiment index forecast to have fallen again this month as consumers grow increasingly gloomy as the US-China trade war begins to bite back at home.
Meanwhile, looking ahead to next week, we expect to see significant volatility in Sterling throughout the session as the Conservative leadership contest finally comes to a close.
With Boris Johnson widely expected to emerge victorious next week, the focus for GBP investors will be on what comes next, with analysts warning a general election could be called by the end of summer if Johnson seeks to push forward with a no-deal Brexit.