Pound US Dollar (GBP/USD) exchange rate slips as markets await Fed decision
The Pound US Dollar (GBP/USD) exchange rate is weakening this morning, as investors look ahead to the latest Federal Reserve interest rate decision.
At the time of writing, GBP/USD is trading at around US$1.2682, a fall of just under 0.4% from the morning’s opening rates.
US Dollar (USD) strengthens ahead of tomorrow’s Fed meeting
The US Dollar (USD) is continuing to climb this morning, as attention turns towards the Federal Reserve’s meeting tomorrow.
While domestic data releases are few and far between today, the ‘Greenback’ could see its gains limited. For now, however, a combination of safe-haven flows and speculation over the Fed’s rate cut forecasts are lifting USD exchange rates.
Markets have begun to price in 68bps of rate cuts this year, but the Fed’s dot plots hold a chance of shifting this to 50bps of loosening.
Matt Eagan, Head of the Full Direction Team at Loomis, Sayles and Co, commented:
‘What will be really interesting to see is if the Fed is still comfortable in the dot plots to still be showing the possibility of three rate cuts for this year. Or will they start to say we’ve got to push back against this a little bit longer.’
Should a hawkish shift occur at tomorrow’s accompanying conference, the ‘Greenback’ could gain additional ground.
Pound (GBP) wobbles amid BoE rate cut speculation
The Pound (GBP) is enduring mixed trade this morning, as markets continue to deliberate the Bank of England’s next steps.
With the latest inflation data due tomorrow, economists are deliberating over the BoE’s potential reaction.
Consensus remains a little murky, but the expectation is continuing to build that this week’s meeting likely won’t change the current narrative.
Interest rate cuts are unlikely until potentially June, as the BoE maintains a data-driven approach. Furthermore, inflation is likely to cool beneath the BoE’s target rate in the near future.
James Smith, Developed Markets Economist at ING, commented:
‘We suspect that leaves June as the earliest date for a rate cut, but more likely we think the Bank will wait until August. At that point it’ll have another month of data, plus a new set of forecasts available. We expect four rate cuts in total this year.’
However, due to a lack of domestic releases, Sterling could see any potential gains limited during today’s trade.
Pound US Dollar exchange rate forecast: UK inflation cooldown to dent GBP?
Looking ahead for the Pound, the latest UK inflation data is set to arrive tomorrow. Both headline and core inflation are forecast by economist to have cooled by 0.5% in February, which could weaken Sterling.
As decelerating inflation would lead into the BoE’s interest rate decision, it may spark speculation on the timing of rate cuts.
The BoE could view this as a signal that it may not need to hold rates as they are for much longer, which could weaken GBP amid escalating cut bets.
The US Dollar, meanwhile, is likely to see volatile trade in the wake of the Fed’s interest rate decision.
This could be worsened by an increase in initial jobless claims, which are forecast to have risen to 215,000 in the week ending March 16.