The pound to US dollar exchange rate is back below 1.25 once again today, following creeping slightly above it towards the end of last week. This once again goes to show that any spikes in the value of the pound do seem to be fairly short lived and have not been hanging around for long.
UK politics influencing Pound to US Dollar exchange rate
Currently, there are a number of political issues that are impacting the value of sterling most notably being Brexit progress (or rather the lack of progress).
Due to the lack of movement and the lack of a leader choosing which direction the country will be heading, investors and speculators alike have been steering clear of the pound and economic data has not been particularly great either. Many business leaders are holding back from large changes until they know which way the UK are heading with Brexit and that is slowing the economy down.
Fed interest rate decision: Will the US Federal Reserve cut interest rates by 25 or 50 basis points?
Over in the US there is a tug of war still going on over whether or not the Federal Reserve will look to make an interest rate cut of 25 or 50 basis points at next week’s interest rate decision, and the outcome of this will most likely impact the performance of the dollar towards the end of next week.
A 50 point cut would most likely weaken the dollar and a 25 point cut should strengthen it as a higher interest rate usually leads to a currency being more attractive due to a better level of return. Sometimes the dollar can swim against the tide however, so nothing is set in stone, due to there still being such a large demand for the perceived ‘safer haven’ currency that still provides a good rate of return even with a cut.
What could happen to GBP/USD exchange rates if the Fed cut interest rates by 50 basis points
Comments following the decision will most likely also be a driver for future performance as they may hint as to what their future plans are for cuts, with the markets generally pricing in future expectations as well as fact this could impact the dollar quite a bit too.
As an example, should we see a 50 basis point cut then the dollar may weaken initially, but should the comments alongside it suggest no further cuts this year then you may actually see it turn back around fairly quickly.
Economic data this week
Later this week we have Durable Goods (Thursday) and Growth figures (Friday) that will be of interest to dollar followers. For those watching the pound it is likely that tomorrow we will find out who the new Prime Minister is, and all eyes will be on the Speech on Wednesday as they arrive at number 10 to hear how they plan to approach their new role in charge of the UK and Brexit.
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