Pound US dollar (GBP/USD) dips as BoE cut rates
(Updated 15:30, 01/08/24) The pound US dollar (GBP/USD) exchange rate is stumbling this afternoon following the Bank of England’s (BoE) latest interest rate decision.
The pound (GBP) has continued to retreat against the majority of its peers as the central bank announced a 25-basis point interest rate cut, slashing rates from 16-year highs of 5.25%.
Although markets quietly anticipated the decision, Sterling sentiment was dampened following the release.
The US dollar (USD) has been marginally undermined by the publication of the latest ISM manufacturing PMI, that came in lower-than-expected.
The index fell from a previous reading of 48.5 to 46.8 in July, not only remaining in contraction territory (a reading below 50) but also behind estimates the index would rise to 48.8.
At the time of writing, GBP/USD is trading at around $1.2810, down roughly 0.3% from today’s opening levels.
Original article continues below:
GBP/USD exchange rate nosedives as BoE rate decision looms
The pound US dollar (GBP/USD) exchange rate is tumbling this morning ahead of the Bank of England’s (BoE) impending interest rate decision.
At the time of writing, GBP/USD is trading at around $1.2782, down roughly 0.5% from this morning’s opening levels.
Pound (GBP) plummets ahead of BoE rate decision
The pound (GBP) is retreating against the majority of its peers this morning, down by as much as 0.8% against some of it’s rivals, as investors await the BoE’s looming interest rate decision.
In the lead up to this month’s meeting, an interest rate cut has been firmly on knife’s edge, with the odds of an August rate cut hovering around 50%.
However, last-minute speculation has pushed the odds of a cut closer to 60%, and just two hours to go before BoE officials gather to make their decision, the pound is experiencing significant headwinds.
Professor Andrew Angus at Cranfield School of Management commented:
‘The current economic growth presents the Bank of England with an interest rate paradox. One reason for the economy’s stronger than expected performance is the expectation that rates will fall this Thursday… But persistent challenges, such as rising wages and strong service sector prices, could push the Monetary Policy Committee to be more cautious. It’s a Catch-22 situation: if the BoE doesn’t follow through, it could send shockwaves through the market.’
US dollar (USD) holds steady despite dovish Fed
The US dollar (USD) is holding steady against the majority of its peers this morning, strengthening against its more risk-sensitive counterparts, despite some dovish forward guidance during the Federal Reserve’s latest interest rate meeting.
Although the Fed kept rates unchanged as widely expected last night, the central bank’s Chair Jerome Powell shared some dovish forward guidance regarding a potential September interest rate cut.
Powell said:
‘The broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate. The question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence in inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table for as soon as the next meeting in September.’
Although Powell’s comments sparked a modest USD sell-off in the wake of his speech, the ‘greenback’ has managed to recoup its losses in today’s European session as markets prepare for a potential BoE rate cut.
GBP/USD exchange rate forecast: BoE cut to sink the pound?
Looking ahead, should the BoE enact a rate cut at this afternoon’s meeting, Sterling is likely to collapse.
Looking beyond the central bank’s decision, this afternoon will see the publication of the finalised US ISM manufacturing PMI.
As July’s index is forecast to remain in contraction territory (a score below 50), this could weigh on the ‘greenback’ towards the end of today’s trading session.