Pound US Dollar Exchange Rate News: GBP/USD Breaches $1.27 as Fed Signals Potential Rate Cuts ahead

June 20, 2019 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Breaches $1.27 as Fed Signals Potential Rate Cuts ahead

US Dollar (USD) Exchange Rates Sink on Dovish Fed Signals

The US Dollar (USD) remains in retreat against the Pound (GBP) and the majority of its other peers this morning following the Federal Reserve’s policy decision on Wednesday.

While the Fed kept rates on hold this month as expected the US Dollar was driven lower as the US central bank signalled that is prepared to reserve some of last year’s rate hikes.

After pursuing an extremely aggressive monetary policy in 2018, the Federal Open Market Committee appears to be rethinking its stance this year as the shine on the US economy begins to fade as it warns that global and domestic risks to the economy have increased.

The FOMC statement read:

‘In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labour market and inflation near its symmetric 2% objective.’

Fed Chair Jerome Powell made it clear that the bank is prepared to take appropriate action in order to protect the US economy, something that was widely interpreted as a sign that the bank will lower rates in the coming months.

USD investors were quick to react, propelling the US Dollar lower as markets began to price in a 76% chance that the Fed will act in July by lowering rates.

Pound (GBP) Gain’s Tempered by Gloomy Retail Sales Figures

Meanwhile, capping the Pound’s (GBP) gains against the US Dollar (USD) this morning is the release of the UK’s latest retail sales report.

According to data published by the Office for National Statistics (ONS), domestic sales growth slumped 0.5% in May, while growth in April was revised down from 0% to -0.1%.

The ONS attributed the fall to the unseasonably cold weather in May, which prompted a sharp decline in clothing sales as consumers delayed the refreshing of their wardrobes for the summer.

The worst sales growth so far in 2019 is unlikely to build confidence in the UK’s second quarter performance as it adds to evidence that the UK’s economy will have stagnated.

James Smith, Developed Markets Economist at ING suggests:

‘Barring a big recovery in June (which given the recent deluge of rain, seems fairly unlikely), it looks like consumer spending will add to the second quarter growth slump. It looks increasingly likely that second-quarter growth could come in flat or only marginally positive, given the likely drag from manufacturing production and inventory rundowns too.’

The outlook doesn’t appear likely to improve anytime soon either as highstreets firms struggle to adapt to shifts in shopping habits.

GBP/USD Exchange Rate Forecast: Will a Hawkish BoE Help to Turbo Charge Sterling?

Looking ahead, there is still the potential for the Pound US Dollar (GBP/USD) exchange rate to continue to climb higher later this afternoon, as the Bank of England (BoE) delivers its June rate decision.

While no policy changes are expected from the BoE this month, the bank’s forward guidance could prove to be a possible market mover.

BoE Governor Mark Carney previously warned following last month’s BoE policy meeting that the markets were ‘underestimating’ the pace at which the bank will raise interest rates.

However given that GBP investors largely shrugged off the remarks, could we see Carney strike an even more hawkish tone today as he seeks to get the message across? And could this light a fire under the Pound?

Meanwhile, we may see the US Dollar attempt to claw back some ground at the very tail end of the session with the publication of the latest US housing figures as economists forecast that existing homes sales will have rebounded in May after three consecutive months of decline.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: American Dollar Forecasts