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GBP/USD – Fed to Wait and See How Economy Reacts to Trade Dispute before Making Policy Changes

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GBP/USD Exchange Rate Steady Following Fed Bullard Comments

Updated: The Pound US Dollar (GBP/USD) exchange rate is currently trading just below its best levels this afternoon as the Federal Reserve’s James Bullard comments on the prospect of further rate cuts.

Speaking to the AFP news agency the St. Louis Fed President suggested the Fed will wait to see how the economy reacts to the trade dispute with China before deciding on its next policy move.

This appeared to pour some cold water on Fed rate cut expectations this afternoon and helped the US Dollar to claw back some of its earlier losses.

GBP/USD Exchange Rate Rallies as Trade Tensions Fuel Fed Rate Cut Expectations

The Pound US Dollar (GBP/USD) exchange rate is trading higher this morning as markets speculation on the prospect of additional rate cuts from the Federal Reserve this year in response to deteriorating US-China trade relations.

At the time of writing the GBP/USD exchange rate is trading at around $1.2201 this morning, up around 0.3% from today’s opening rate.

US Dollar (USD) Slips, Will the US-China Trade Dispute Force the Fed’s Hands on Monetary Easing?

As the US-China trade dispute begins to heat up once more, the US Dollar (USD) is facing an increasingly uncertainty future as markets speculate on how a potential trade war could impact US monetary policy.

In light of recent developments, including Donald Trump’s threats of additional tariffs on Chinese exports and accusations of currency manipulation by Beijing, Goldman Sachs says it is now unlikely that the US and China will resolve their trade dispute by the 2020 US presidential election.

Jan Hatzius chief economist at Goldman Sachs suggests:

‘Both sides in the trade conflict are taking a harder line, reducing the odds of a resolution in the near term.’

This in turn has led analysts at Goldman Sachs to forecast that this will force the Federal Reserve’s hands in regards to additional rate cuts this year.

Having cut rates for the first time in over a decade last month, the bank signalled that it was increasingly sensitive to the possible disruption caused by deteriorating global trade conditions.

Goldman Sachs is now forecasting that, ‘in light of growing trade policy risks’, the Fed will implement two back-to-back rate cuts by the Fed in September and October.

How Will This Week’s GDP Figures Impact the Pound (GBP)?

Looking ahead, outside of potential volatility caused by ongoing Brexit uncertainty, the main catalyst of movement in the Pound (GBP) this week looks to be the publication of the UK’s latest GDP figures at the tail end of the session.

Economists forecast that economic growth in the UK have either stagnated or contracted by 0.1% in the second quarter, likely pushing Sterling lower.

Accompanying the GDP figures will also be the UK’s latest business investment figures, which are expected to show that investment slumped again in Q2 in response to increased Brexit uncertainty.

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