GBP to USD rate rises after US Federal Reserve slashes interest rates

Pound to Dollar Exchange Rate: GBP Finds Support over 1.25 Against USD

Pound ends October on a high

There’s no denying the pound has had a torrid time since the EU referendum back in June 2016. The resulting political and economic uncertainty has forced it to cling onto any scrap of optimism it can. So, October must have felt like the halcyon days before the Brexit vote, after the prospect of a no-deal was taken off the table before an early election was confirmed. In fact, October has proved such a positive period for the pound that the GBP vs USD rate climbed in value by more than 5.3% – its biggest rally since May 2009.

The first polls released since the House of Lords passed the election bill and it received Royal assent, suggest Boris Johnson currently holds a 15-point lead over Jeremy Corbyn. As expectations grow that the Conservatives might prevail in the December poll, so do hopes that the Brexit deadlock can be broken.

However, it’s worth noting that Theresa May enjoyed a similar lead prior to the 2017 election, which resulted in her losing her majority after Labour narrowed the gap. And with Brexit set to dominate the campaign agenda for both parties at the expense of other important issues, the outcome is far from certain.

US dollar hamstrung by Fed rate cut

The US dollar remained on the back foot on Thursday, as it digested the US Federal Reserve’s (Fed) decision to cut interest rates for the third month in a row. Despite being largely priced in by the markets, subsequent comments by Jerome Powell weighed on the dollar. Having ruled out the chance of a December cut, the Fed Chairman signalled that the Central Bank was done with monetary easing for now.

Powell said: “Inflation expectations are central to the Fed’s framework. We just touched 2% core inflation to pick one measure. Just touched it for a few months and then we’ve fallen back. So, I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns”. The pound to the dollar rate – which was already benefitting from political developments in Westminster – subsequently maintained its steady rise in value.

Looking ahead

The pound to US dollar rate may continue to trend higher today, following the publication of the latest US economic data, which is forecast to disappoint – potentially making it the best time to buy dollars this week. In the spotlight are the highly influential US payroll report and the ISM manufacturing Purchasing Manager’s Index (PMI) release.

Prior to that, the UK will publish its latest manufacturing PMI data this morning, with the slump in the domestic factory sector looking set to persist for another month.

To discuss how these factors are likely to continue impacting cable exchange rates, get in touch with a member of our team on +44 (0)1494 360 899 or use the form below.