After the recent period of weakness sterling exchange rates remain towards the bottom end of their recent trading ranges, with the pound to US dollar figure trading just 20 pips from its annual low at the time of writing in the 1.24’s.
The pound has got off to a weak start this morning and it’s fallen by almost 0.50% already this morning, as markets await Employment data which is set for release this morning.
Pound to US Dollar: How will a likely interest rate cut affect the US Dollar?
At the beginning of the year there was talk of interest rate hikes from a number of key central banks globally, but the mood appears to have reversed which has led a number of the same Central banks to now planning on making interest rate cuts, with the US Federal Reserve Bank included. It appears that the trade tensions with China and the fears of a global slowdown have weighed on sentiment stateside, and markets expect at least one interest rate cut from the Fed this year which will be the first in over a decade.
Some economic forecasters are outlining a rate cut this month at the Fed’s next meeting (30-31st of July), with further cuts throughout the year. For example, analysts at Barclays expect a 25 basis point cut this month, and then a further cut of 50 basis points throughout the rest of 2019.
How could further cuts affect Pound to US Dollar rates?
If there are more cuts than the markets generally expect, I think we could see the US dollar drop in value which could help push the GBP/USD pair closer to the 1.30 levels we saw earlier this year. If there is a 50 basis point cut like the analysts at UBS think could happen later this month, I would expect to see a sharper drop for the US dollar as most market commentators aren’t expecting a drop of this size.
If you would like to be kept updated regarding any market movements between the pound and the US dollar, do feel free to register your interest with me.