Pound US dollar (GBP/USD) exchange rate subdued ahead of central bank speeches
The pound US dollar (GBP/USD) exchange rate is trapped in a narrow range this morning as markets digest the monetary implications from the Federal Reserve’s and the Bank of England’s (BoE) latest interest rate decisions, ahead of key policymaker speeches later today.
At the time of writing, GBP/USD is trading at around $1.2608, virtually unchanged from this morning’s opening rate.
US dollar (USD) undermined by Fed rate cut speculation
The US dollar has begun the week on the back foot against the majority of its peers as markets are increasing their bets on a June interest rate cut from the Federal Reserve, following its latest interest rate decision on Wednesday.
In the wake of the meeting, The CME FedWatch tool now predicts a 75% chance that the central bank will deliver its first rate cut in June this year, up from just 60% prior to the central bank’s press release.
This is dragging on the US dollar this morning, as markets brace for further commentary from Fed official Raphael Bostic.
Should Bostic echo his recently hawkish comments on Friday, where he said that he now expects to see just one interest rate cut this year instead of the two rate cut’s he had previously predicted, US dollar exchange rates could strengthen.
Pound (GBP) dented amid dovish outlook
Similarly to the US dollar, the pound is facing headwinds this morning as markets bets on an interest rate cut from the BoE sooner than previously expected.
Prior to the central bank’s interest rate decision on Thursday, markets predicted that the BoE could be one of the last major banks to begin loosening monetary policy this year.
However, Governor Andrew Bailey’s dovish comments on Friday, stating that rate cuts are now ‘in play’ at future monetary policy meetings, stoked bets that the central bank could introduce its first rate cut in June rather than August, thereby denting Sterling sentiment this morning.
Later today, Bank of England Monetary Policy Committee member Catherine Mann will deliver a speech at the Royal Economic Society’s annual conference in Belfast.
Should Mann share any dovish hints surrounding the possibility of an upcoming interest rate cut, GBP exchange rates could dip further as a result.
GBP/USD exchange rate forecast: US durable goods orders to buoy US dollar?
Looking ahead, the primary catalyst of the movement for the pound US dollar exchange rate for the first half of the week is likely to be the latest US durable goods orders.
Scheduled for release on Tuesday, the data is expected to report a rebound in order growth in February, rising from -6.1% up to a positive reading of 1%. Should the data match expectations, this may bolster USD exchange rates in the first half of the week.
Turning to the Pound, with macroeconomic releases few and far between this week, GBP exchange rates will likely trade on market sentiment. Should markets return to upbeat trading conditions, the increasingly risk-sensitive Sterling could gain ground.