Pound Sterling US Dollar Exchange Rate Trades Narrowly After the Fed Cuts Interest Rates to 2%

GBP/USD Exchange Rate Muted Following Fed Rate Decision

The Pound Sterling to US Dollar (GBP/USD) exchange rate remains rangebound this morning in the wake of the Federal Reserve’s latest policy decision.

At the time of writing the GBP/USD exchange rate is trading at around $1.2491, virtually unchanged from this morning’s opening rate.

US Dollar (USD) Buoyed by Fed’s Hawkish Cut

The US Dollar (USD) firmed against the majority of its peers (excluding the Pound) yesterday evening as markets reacted to the Federal Reserve’s latest policy decision.

As had been widely forecast, the Federal Open Market Committee (FOMC) voted to cut interest rates by 0.25 basis points, its second cut in as many months.

With the move having been priced in well ahead of time, investors took the cut in their stride.

Instead the focus for USD investors was on the language of the bank’s accompanying statement and what insights it offered into the Fed’s plan for future policy.

In response we saw the US Dollar accelerate as the statement’s more hawkish tone cast doubts on whether the Fed may cut rates again before 2020.

‘Today Powell delivered a very hawkish policy rate cut. Although it met market expectations for a 25 basis point cut.

‘With recent economic data – such as industrial production growth and housing stats- tentatively suggesting that a trough in activity is approaching, a stabilisation in growth is a more plausible scenario than an outright recession, so perhaps there is less need for further easing.’

The Fed’s statement has seen the odds for an October rate cut fall to just 40%, down from 70% last month according to CME Group’s FedWatch tool.

Pound (GBP) Muted Following Shock Contraction in UK Retail Sales

The Pound (GBP) is struggling to find momentum this morning after UK retail sales underperformed in August.

According to data published by the Office for National Statistics (ONS), retail sales unexpectedly contracted last month, with sales growth sliding from 0.4% to -0.2%, against expectations they would stagnate.

While sales have grown in the three-months to August, last month’s decline indicates any economic recovery in the third quarter is likely to be modest in scope.

GBP/USD Exchange Rate Forecast: Will the Supreme Court Overshadow Today’s BoE Decision?

Still to come today is the Bank of England’s (BoE) own rate decision, as well as the UK Supreme Court’s ruling on whether Boris Johnson’s proroguing of parliament was unlawful.

The BoE is expected to continue to leave its monetary policy unchanged this month as the bank awaits more clarity on Brexit.

Any resulting movement in the Pound US Dollar (GBP/USD) exchange rate is therefore likely to come from the bank’s minutes as they offer more insight into the bank’s Brexit outlook.

However this risks being over shadowed by the Supreme Court decision, with Sterling potentially soaring if the Court rules the suspension of Parliament was unlawful.

Meanwhile, potentially prompting some weakness in the US Dollar this afternoon with be the latest US housing figures, which are likely to show a contraction in existing home sales last month.

Matthew Andrews

Contact Matthew Andrews