Pound US dollar (GBP/USD) exchange rate drops to monthly low amid BoE rate cut speculation
The pound US dollar (GBP/USD) exchange rate is touching a fresh monthly low today, as markets consider the Bank of England’s (BoE) next steps.
At the time of writing, GBP/USD is trading at around US$1.2582, a drop of just over 0.6% from the morning’s opening rates.
Pound (GBP) pressured by BoE rate cut bets
The pound (GBP) is under pressure this morning, as investors continue to speculate over the Bank of England’s path forward.
For the first time since 2021, no members of the Monetary Policy Committee (MPC) voted for an interest rate hike.
BoE Governor Andrew Bailey also indicated that rate cuts were on the cards this year. This has led to speculation that the BoE could cut rates by 1% over 2024, which is weakening Sterling.
In a note published this morning, analysts at Morgan Stanley commented:
‘The guidance was unchanged, but the minutes offered some interesting (dovish) shifts. We leave our call unchanged – May start, 100bp of cuts this year – but continue to acknowledge the risks of a later move. That said, after today, we have somewhat greater conviction that “later” means June and not August.’
However, Sterling may be being cushioned by the latest retail sales data for February, which printed above expectations.
While a contraction of 0.3% was forecast, sales instead stalled during February as poor weather hampered consumer spending.
Additionally, risk-averse trade is serving to undermine the pound against safer assets such as the US dollar (USD).
US dollar (USD) sustains momentum ahead of Fed speeches
The US dollar is continuing to strengthen this morning, as investors await a speech from Federal Reserve Chair Jerome Powell.
Later this afternoon, Powell is due to participate in an event with Vice Chair Phillip Jefferson and Governor Michelle Bowman. If these key figures in the central bank further discuss the Fed’s interest rate decision, the US dollar could see volatile trade later on.
Following the Fed’s rate decision earlier this week, which saw the central bank reaffirm the likelihood of three rate cuts this year. However, dip-buying and dovish central bank decisions elsewhere are propelling the ‘greenback’.
This, in turn, is driving bearish trading conditions during this morning’s session. As the US dollar is a safe-haven currency, this allows it to enjoy additional support against riskier assets such as the pound.
Pound US dollar exchange rate forecast: Lack of data to limit pound?
Looking ahead to early next week for the Pound, data releases are few and far between, which could limit directional trade.
Furthermore, its likely to leave the increasingly risk-sensitive currency exposed to shifts in the market mood. If trading conditions sour, the Pound may struggle to attract support.
It may also keep investors focused on the BoE’s next steps. Following hints of an incoming interest rate cut, the pound could remain volatile in the short term.
The story is similar for the US dollar, which is also set to see a quiet beginning to the week’s trade. However, USD could continue to climb if markets favour safer assets.