Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls on Fed Rate Cut
The Pound Sterling US Dollar (GBP/USD) exchange rate edged lower, leaving the pairing trading at around $1.2784.
Markets attempted to stabilise after yesterday’s surprise move from the US Federal Reserve.
Coronavirus fears weighed on the US Dollar following yesterday’s unexpected interest rate cut from the Fed.
The emergency 50 basis point cut from the bank has fuelled further anxiety about the impact of Covid-19. This sent USD near five-month lows against the Japanese Yen (JPY), and near a two-year low against the Swiss Franc (CHF).
Commenting on this, chief currency strategist at Mizuho Securities in Tokyo, Masafumi Yamamoto said:
‘The G7 and the Fed were not enough to support markets.
‘This Fed rate cut is bad for Dollar/Yen, partly because Treasury yields are now very low. The dollar’s weakness is reflected in the euro, because the Fed will likely ease more than the ECB.’
However, the ‘Greenback’ was able to make gains against the Pound as uncertainty about UK-EU trade talks weighed on sentiment.
Added to this, growing expectations for UK interest rate cuts weighed on the British currency, sending it lower against the Dollar.
Pound (GBP) Slides as Services Loses its ‘Bounce’
Meanwhile, data released this morning showed growth in the UK services sector slowed in February.
Markit revealed there were weaker rises in both business activity and new work.
However, increases in business activity added to growing signs of a rebound in customer demand following December’s general election.
The UK services PMI edged down from January’s 53.9 to 53.2 in February, but was still the second-highest since September 2018.
Commenting on this morning’s data, Chris Williamson, Chief Business Economist at IHS Markit stated:
‘The post-election rebound in service sector growth lost some of its bounce in February, in part due to coronavirus related disruptions to sectors such as travel and tourism, but continued to expand at an encouragingly robust pace.
‘Whether this expansion can be sustained in coming months is starting to look increasingly at risk. On one hand, February saw future output expectations climbing to the highest for over four and a half years as firms remained optimistic that reduced political uncertainty in particular will help drive further growth. On the other hand, the survey also highlights the risks to the economy from the coronavirus.’
Pound Dollar Outlook: US Services PMI in Focus
Looking ahead to this afternoon, the US Dollar (USD) could suffer some losses against the Pound (GBP) following the release of PMI data.
If the Federal Reserve’s preferred non-manufacturing PMI measure slumps further than expected, showing the sector has slowed, USD will fall.
Added to this, if Markit’s services PMI reveals the sector has fallen below the no-change 50 mark, the Dollar will suffer losses.
Thursday could see the US Dollar slide following the release of January’s US factory orders.
If factory orders slump further than expected at the start of 2020, the Pound US Dollar (GBP/USD) exchange rate will edge higher.