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GBP to USD Exchange Rate Recovers from Monday Slump as Fed Rate Cut Bets Persist

June 12, 2019 - Written by Minesh Chaudhari

Despite broad uncertainties about the Brexit process and how it will influence the outlook for UK politics and the economy, the British Pound to US Dollar (GBP/USD) exchange rate has recovered from this week’s lows as the US Dollar remains comparatively less appealing than the Pound this week. Rising Federal Reserve interest rate cut bets keep USD weak.

After last week’s solid climb of a cent from 1.2633 to 1.2738, GBP/USD’s movement has been a little more mixed this week. However, while a shocking contraction of UK growth hit Sterling lower at the beginning of the week, the pair has now recovered and trends slightly above the week’s opening levels once again.

GBP/USD trends less than half a cent below its best levels all month, due largely to broad US Dollar weakness since the end of May.

While US-Mexico trade jitters have lightened somewhat, US-China trade tensions and Federal Reserve interest rate cut bets persist. Investors now anticipate major upcoming US data.

GBP Exchange Rates Find Support in UK Job Market Report

The Pound to US Dollar exchange rate saw strong gains last week, but this was largely due to broad weakness in the US Dollar.

The Pound’s own strength remains limited, as Brexit fears and UK political uncertainties continue to have a negative impact on Britain’s economic performance as well.

This week’s data has been the latest evidence of UK economic weakness, as Monday’s Gross Domestic Product (GDP) growth rate report from April saw a shocking monthly contraction of -0.4%.

It indicated that business and economic activity was even slower than expected amid Brexit uncertainty, and some analysts predicted that it could lead to a Q2 contraction for Britain’s economy.

Despite this though, the Pound did find some fresh support yesterday as Britain’s latest job market report came in more strongly than forecast.

The employment change figure was higher than expected, and growth in average earnings was higher than forecast in figures both including and excluding bonuses.

While some analysts expressed concern that the job sector was showing signs of slowing, the news was overall optimistic for Pound investors and other analysts noted that the job data was likely enough to keep the Bank of England (BoE) more cautiously optimistic than pessimistic.

USD Exchange Rates Fail to Hold Ground as Federal Reserve Rate Cut Bets Continue to Rise

The US Dollar has been weaker since last week. As US President Donald Trump ramped up trade tensions with major trade partners and US data continued to disappoint investors, Federal Reserve interest rate cut bets surged.

The US Dollar’s selloff has now slowed as markets have priced in Fed interest rate cuts for the next year. Some are betting that the Fed could cut interest rates as soon as the bank’s June policy decision next week.

This is keeping the US Dollar under pressure as well though, with investors hesitant to buy the currency back too much from its worst levels ahead of upcoming major US data and next week’s Fed news.

Investors also remain concerned about persisting trade tensions between the US and China, despite signs that tensions between the US and Mexico are lightening.

According to Konstantinos Anthis, Head of Research at ADSS:

‘The prospect of an unending trade dispute between the world's two largest economies is a nightmare scenario and, despite their respective government officials' comments, both the US and China are seeing a steady deceleration in their domestic growth,’

GBP/USD Exchange Rate Forecast: US Data in Focus Ahead of Next Week’s Fed Decision

With the UK Conservative Party leadership contest ongoing and a lack of notable UK ecostats due for publication for the remainder of the week, the Pound to US Dollar exchange rate will be driven more by US news and movement in the US Dollar.

The US Dollar’s weakness has been the primary cause of recent GBP/USD advances, and if the US currency continues to fall then the pair may be in for further gains.

The most vital datasets due for publication in the coming days include this afternoon’s US inflation rate report. Though the data is perceived as unlikely to change the Fed’s monetary policy plans, a particularly surprising print could still influence the outlook.

US import and export prices from May will be published tomorrow, followed by key retail sales stats on Friday.

The more of these figures disappoint, the more the US economic outlook will weaken ahead of next week’s Federal Reserve policy decision. The Pound to US Dollar exchange rate will also react to any surprising UK political developments.
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