Fed Rate Cut Bets Keep Pound to US Dollar (GBP/USD) Exchange Rate Climbing Higher

Pound to US Dollar Exchange Rate Advances into Fresh Weekly Best

Following the Pound’s (GBP) falls against a strong US Dollar (USD) throughout February, the Pound Sterling to US Dollar (GBP/USD) exchange rate has seen a significant recovery in the second half of this week. The US Dollar’s downtrend may have further to go.

GBP/USD opened this week at the interbank level of 1.28. The pair briefly trended narrowly below the week’s opening levels.

Bank of England (BoE) rate cut speculation softened in the middle of the week though, letting Sterling recover. This and lingering USD weakness made it easy for GBP/USD to mount an impressive recovery of over a cent.

At the time of writing on Friday, GBP/USD is trending near weekly highs in the region of 1.29. The pair is just below the key interbank level of 1.30.

Central bank bets are likely to remain a focus for Pound and US Dollar investors. They will be driven by developments and speculations around the outbreak of coronavirus Covid-19.

Pound (GBP) Exchange Rates Steady on Softer BoE Bets and Brexit Hopes

The Pound (GBP) looks to end the week on a positive note. This is despite the bearishness it saw at the beginning of the week.

The latest comments over Brexit have been seen as modestly optimistic, following this week’s negotiations. The EU’s Chief Brexit Negotiator, Michel Barnier, said that he thought reaching a deal this year was still entirely possible.

Barnier had also said that there were ‘very serious’ differences between UK and EU officials on what the future relationship should look like. Ultimately though, Barnier’s more hopeful words helped the Pound to steady.

On top of this, concerns that the Bank of England (BoE) could make an emergency interest rate cut have softened. While BoE rate cut bets remain high, Sterling rebounded from its recent lows more easily as speculation of an emergency rate cut faded.

US Dollar (USD) Exchange Rates Continue to Tumble as Federal Reserve Rate Cut Bets Rise

The US Dollar (USD) has seen increasingly bearish movement over the past couple of weeks. As the coronavirus Covid-19 spreads outside of China, concerns over its economic impact in the US worsen.

In fact, the market’s US economic outlook has been significantly altered by the Covid-19 outbreak.

Due to the Federal Reserve’s relatively high interest rates, the Fed was perceived as having more room to move on monetary policy than other major central banks.

This has meant that Fed interest rate cut bets surged much more than other bank rate cut bets have. The Fed announced a 50 basis point emergency rate cut earlier this week, but even after this rate cut bets are rising further.

Amid rising expectations that the Fed will bring rates lower and lower to protect the US economy, the US Dollar continues to see major losses across the board.

Pound to US Dollar (GBP/USD) Exchange Rate Could Climb Higher despite Lack of Pound Support

Broad US Dollar (USD) weakness is expected to continue. Investors await more comments from Federal Reserve officials and are speculating over how low rates can go in order to protect the US economy from the coronavirus outbreak.

This could keep the Pound to US Dollar (GBP/USD) exchange rate climbing, despite a lack of solid support for the Pound (GBP).

Analysts at ING expect the US Dollar will fall further and remain under pressure. An ING research note said:

‘For now, expect USD weakness vs G10 FX to continue, and the G10 FX segment outperforming EM FX, with carry trades under pressure,’

On the other hand, if US data is impressive in the coming week it could bolster the market’s US Dollar outlook.

US inflation and confidence data will be published next week. If inflation beats forecasts, the Fed may see slightly less pressure to cut rates a lot.

The Pound’s strength may influence GBP/USD next week as well. Key UK growth data is due on Wednesday, and if this falls short it could worsen Bank of England (BoE) rate cut speculation and weigh on Sterling.

Of course, coronavirus and Brexit developments will continue to influence the Pound to US Dollar (GBP/USD) exchange rate as well.

Josh Jeffery

Contact Josh Jeffery