Jonathan Watson
Associate Director
Will the Fed cut interest rates?
USD strengthens against the pound due to strong performing US economy.
Request a quoteAt the turn of the year the market was predicting a series of interest rate hikes for the US economy, the shift in sentiment of late is actually quite surprising and just shows the danger in placing too high an expectation on the future, in the currency markets.
| Currency Pair | % Change (Month) | Difference on £200,000 | |
|---|---|---|---|
 GBP |  USD | 3.7% | $9,401 |
Despite these concerns, the US dollar has been strengthening in many respects, with the market embracing the still higher interest rate globally, and the prospect that any cuts will only keep their economy the ‘best’ moving forward.
Today, there is a speech by Jerome Powell which will provide some insight for the market ahead of the actual interest rate decision due on the 31st July. The market is predicting a cut of around 0.25% but depending on data this could change. Investors have been struggling with clarity on what kind of cut is necessary and when it should take place.
The recent NFPR (Non-Farm Payroll) data released has seen a big boost for the US dollar, briefly pushing GBP/USD interbank rates into the 1.24’s on Friday afternoon.
Will GBP/USD drop to new lows?
GBP/USD levels have nudged the 2019 lows seen in January, as investors continue to back the US dollar and lose faith in sterling. Sterling may continue to struggle until we know something firmer regarding the UK Conservative Party election result due on the 22nd July.
The pound to US dollar has been trending lower ever since no-deal came back onto the agenda with Theresa May’s resignation, we could therefore expect that since Boris is likely to win the Tory race, and actively backs no-deal, we may see GBP/USD interbank levels struggling to push higher back into the high 1.20’s.
Looking at more global events, the recent G20 summit also showed that the trade wars are not as bad as the market anticipated and Trump’s ability to come out of bad situations, relatively unscathed is perhaps also providing the market with some clarity and confidence on the US dollar.
Clients with any GBP/USD positions could potentially benefit from a quick review of their situation and the latest trends and themes with their account manager.
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