GBP/USD Exchange Rate Gives Ground in Run up to BoE Decision
The Pound to US Dollar (GBP/USD) exchange rate opens today’s session on the back foot, with markets growing skittish ahead of the Bank of England’s (BoE) latest interest rate decision.
At the time of writing the GBP/USD exchange rate is trading at around $1.2984, down roughly 0.3% from this morning’s opening rate.
Pound (GBP) Faces Further Losses if BoE opts for a Rate Cut
The Pound (GBP) looks to be in the balance today as markets wait to hear from the BoE on whether or not it felt the need to ease its monetary policy this month.
There has been considerable speculation in recent weeks that the bank might opt for an immediate cut to interest rates, with markets now pricing in a 50-50 chance of a January rate cut.
— Reuters UK (@ReutersUK) January 30, 2020
In his final meeting as Governor of the BoE, Mark Carney and his colleagues on the Monetary Policy Committee (MPC) find themselves in a difficult spot.
On one hand GDP, inflation and retail sales have all underperformed in recent months and with the UK preparing to embark on life outside of the EU a rate cut could help to shore up economic growth.
Neil Wilson – Chief Market Analyst at Markets.com, suggests this points to a possible cut:
‘Recent comments from several policy makers at the Bank, some softer inflation data and GDP numbers, and persistent risks to the global outlook suggest the MPC may choose to act now to cut.’
On the other hand, the UK’s services and manufacturing both rebounded in January, and with a new Governor taking over in March the MPC may feel it best to remain in ‘wait and see mode’ for now.
Paul Hollingsworth, an economist at BNP Paribas believes a move in March is more likely:
‘We suspect a majority on the MPC will want to wait for more hard data, and to see the extent of any fiscal response in the March budget.’
Given the uncertainty, today’s decision looks to have GBP investors on the edge of their seats and is likely to infuse some volatility into the Pound later this afternoon, particularly if the bank ultimately decides to cut rates.
US Dollar (USD) Buoyed by Renewed Coronavirus Fears
The US Dollar (USD) find itself back in demand this morning as renewed fears over the coronavirus outbreak in China prompts investors to flock to the safe-haven currency.
Overnight the death toll from the virus jumped over 30% as was confirmed to have spread to every region in mainland China, prompting fears it may still be some time before it peaks.
Investors fear the coronavirus outbreak will cause considerable disruption to the Chinese economy, a major engine of global growth.
GBP/USD Forecast: Brexit Uncertainty to Weigh on the Pound?
Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate is likely to remain volatile through to the end of this week’s session as the UK is set to formally exit the EU on Friday.
While markets will be relieved to see the UK exiting with a withdrawal deal in place, considerable uncertainty over the next stage of negotiations is likely to limit upside in Sterling going forward.
In the meantime, USD investors will be focused on the publication of the latest US GDP figures later this afternoon.
This may see the US Dollar firm if they confirm the US economy continued to expand at a brisk pace in the fourth quarter.