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Pound US Dollar (GBP/USD) Exchange Rate Rises on Dovish US Fed Forecasts

GBP/USD Exchange Rate Rises on US Economic Growth Woes

The Pound US Dollar (GBP/USD) edged higher today and is currently trading around $1.2709 on the interbank market.

The US Dollar (USD) weakened against the Pound (GBP) after the US Federal Reserve held its interest rates at 2.5% yesterday.

The Fed, however, shifted its guidance, warning that further economic uncertainty could see an interest rate cut in the near future.

The FOMC said in its statement:

‘In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.’

The Fed’s dovish stance has weighed on market confidence in the US Dollar, leaving many traders feeling skittish as the US economy shows signs of slowing down.

‘Greenback’ traders will be awaiting today’s continuing jobless claims figures for June, which are expected to ease at 1.688m.

These will be followed by the US Philadelphia Fed Manufacturing Survey figures for June, which are expected to decrease to 11.0 against May’s 16.6, potentially further weighing on the USD/GBP exchange rate.

Sterling rose this morning following last night’s parliamentary vote on the future Tory leadership role, with Boris Johnson once again coming out on top, while Rory Stewart, a hopeful ‘underdog’ candidate, was eliminated from the competition.  

GBP/USD Exchange Rate Edges Higher as Sterling Traders Brace for Interest Rate Decision

Today will see the Bank of England (BoE) announce its interest rate decision, which is expected to come in unchanged at 0.75%.

Unlike most other major banks – in the US or in Europe – the BoE has remained generally bullish, with hopes to raise its interest rates in the future, despite ongoing trade wars and signs of a global economic slowdown forcing other banks to remain more cautious.

Simon French, a Chief Economist at the bank Panmure Gordon, said:

‘If the rest of the world is going to be on an easing path and we hold tight … all else being equal it does the job on sterling.’

UK retail sales figures for May failed to move Pound, decreasing to -0.5% for the month, while annually they fell to a worse-than-expected 2.3%.

James Smith, a Development Markets Economist at the financial services company ING, commented:

‘Colder temperatures have kept shoppers away from the high street in the UK, and this will only add to the slowdown in second-quarter growth. But with wage growth continuing to perform well, we think the Bank of England will retain a reasonably hawkish bias at its meeting later today.’

GBP/USD Outlook: Tory Leadership Campaign to Remain in Focus

Sterling traders will be looking ahead to tomorrow’s release of the UK public sector net borrowing figures for May, which are expected to increase.

This will be followed by the BoE’s quarterly bulletin report for the second-quarter, and with any hints of dovishness creeping into the bank’s projections could weaken the GBP/USD exchange rate.

Tomorrow will see the printing of the flash US Markit Manufacturing PMI figures for June, and with any signs of improvement, this could lend some uplift for the ‘Greenback’.

Preliminary US services PMI figures are, however, forecast to improve.

The Pound US Dollar (GBP/USD) exchange rate will likely be driven by continuing political developments in the UK, with the ongoing Tory leadership campaign remaining in focus.