Pound to Dollar Forecast: GBP to USD Rate Drops Below 1.30 For First Time in 2020

GBP USD rate tripped up by weak data

The pound to US dollar rate dipped below 1.30 on Monday morning. The move south was made on the back of mounting speculation that the Bank of England (BoE) could cut interest rates as soon as this month. Weaker-than-expected data showed that the UK economy contracted by 0.3% in November, as the general election campaign hotted-up. The GDP figure fell well below the stagnation economists had forecast, with manufacturing weakness extending to the dominant services sector. The pound, which was already feeling the weight of comments by BoE policymaker Gertjan Vlieghe that he was considering voting for a rate cut in January, was pushed below 1.30 for the first time in 2020.

Two members of the BoE’s Monetary Policy Committee have now indicated that they could vote for a cut in interest rates this month if data continues to disappoint. The potential direction of monetary policy has proved the driving force for the pound so far this year, despite the looming threat of a no-deal Brexit.

Looking ahead

Following months of repeated promises and dashed hopes, investors in the dollar will be hoping the US-China phase one trade deal signing ceremony finally takes place tomorrow, as announced by Donald Trump on New Year’s Eve. Friday’s underwhelming jobs data and wage growth figures for December raised concerns about the health of the US economy, which could benefit from a de-escalation in trade tension between the two superpowers. It would come as a huge surprise if the deal is not signed on Wednesday, with both sides hinting that they are almost certain to put pen to paper. But this is politics, and nothing is certain.

Tomorrow’s UK inflation figure for December is expected to rise by 1.5%, well below the BoE’s target. If the reading matches or falls short of its forecast, the pound could continue to weaken as the chances of a rate cut gather momentum. Meanwhile, dollar investors will be focusing on the publication of the US inflation figure for December, which hits the headlines this afternoon. President of the Federal Reserve Bank of New York, John Williams will make a speech following the influential release, which could provide an indication of the central bank’s future thinking around interest rates.

If you would like to learn more about factors influencing GBP/USD exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.