Pound US dollar (GBP/USD) exchange rate strengthens amid ramped up Fed rate cut bets
The pound US dollar (GBP/USD) exchange rate is gaining ground this morning as an increase in Federal Reserve interest rate cut bets have dampened USD sentiment this morning.
At the time of writing, GBP/USD is trading at around $1.3186, up roughly 0.5% from this morning’s opening levels.
US dollar (USD) slumps amid rising rate cut bets
The US dollar (USD) is facing significant headwinds this morning, weakening against the majority of its peers, as an increase in Federal Reserve interest rate cut bets sees the ‘greenback’ struggle to catch bids.
Following a slew of underwhelming US data, most recently a weaker-than-expected producer price index, markets have upped their bets that the Federal Reserve will embark on a more aggressive policy easing cycle this week.
Following Friday’s PPI release, the CME’s FedWatch Tool is showing the odds of a 50 basis-point interest rate cut at 61%, up from 50% last week.
With the central bank’s decision just days away, USD will likely remain on the back foot until the Fed deliver its upcoming interest rate decision on Wednesday.
Pound (GBP) ticks up despite lack of UK data
The pound (GBP) is posting modest gains against several of its counterparts this morning despite the absence of any fresh economic data.
Offering the British currency some modest support this morning are current Bank of England (BoE) interest rate cut bets.
A recent poll by Reuters, published late last week, revealed that all 65 economists that took part in Friday’s survey expect the BoE to maintain the UK’s current interest rate at 5% later this week.
Ruben Segura Cayuela, Head of European Economics at the Bank of America, told CNBC’s Squawk Box Europe:
‘We have quarterly cuts from here. We don’t think they are going to move next week, with a 7-2 vote.’
Further buoying GBP exchange rates is this morning’s cautiously upbeat mood, which has seen the increasing risk-sensitive pound firm against its safer assets.
GBP/USD exchange rate forecast: central bank decisions in the spotlight
Looking ahead, the primary catalyst of movement for the pound US dollar exchange rate this week will undoubtedly be the Federal Reserve’s and the Bank of England’s upcoming interest rate decisions.
Looking at the US dollar, should the Fed enact a 50-bps interest rate cut, the ‘greenback’ will likely slump against its peers during mid-week trade.
Turning to the pound, the UK will publish its latest CPI data on Wednesday, which could infuse volatility into GBP exchange rates a day ahead of the BoE’s own interest rate decision.
Should Wednesday’s inflation figures have any impact on BoE rate cut bets or indeed the central banks upcoming decision, Sterling could also find itself experiencing fresh headwinds during the second half of the week.