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Pound US Dollar (GBP/USD) Exchange Rate Steadies Following Fed Rate Cut Fears

July 12, 2019 - Written by John Cameron

GBP/USD Exchange Rate Rangebound on Dovish US Monetary Policy Forecasts

The Pound US Dollar (GBP/USD) exchange rate stabilised this morning, leaving the pairing fluctuating around $1.2533.

The US Dollar (USD) steadied against the Pound (GBP) following yesterday’s comments from the US Federal Reserve which seemed to indicate a rate cut.

Jerome Powel, the Chair of the Board of Governors at the Fed, took on a dovish tone yesterday, saying:

‘Trade disputes are inserting uncertainty into global supply chains. [And] [p]olicy has not been as accommodative as we thought.’

Mr Powell also said that the US central bank has room to potentially ease its monetary policy at the next meeting, heightening fears of a potential rate cut as early as this month.

The Pound, meanwhile, benefited from yesterday’s financial stability report from the BoE.

The UK central bank said that the UK financial system was ‘prepared’ for Brexit and potential global trade headwinds, reassuring some Sterling traders on a more bullish than expected stance.

The BoE said in its statement yesterday:

‘Even if a protectionist-drive global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks and continue to serve UK households and businesses.’

GBP/USD Exchange Rate Flat as BoE Stated its Resilience in Face of Brexit

Today saw a speech by Gertjan Vlieghe, a member of the BoE’s Monetary Policy Committee, in which he a warned a no-deal Brexit could mean near-zero interest rates.

Mr Vlieghe however added:

‘It is highly uncertain when I would want to reverse these interest rate cuts. [But it’s] entirely possible that we see data volatility again around the perceived no-deal risk at the end of October.’

This has left Sterling traders relatively unmoved, however, as they continue to absorb yesterday’s comments from the BoE’s Chair, Mark Carney.

Mr Carney also warned that despite immense preparations and expenditure, a no-deal Brexit would put enormous pressure on the UK economy.

Greg Clark, the Secretary of State for Business, also heightened concerns over a chaotic exit from the European Union, saying that it could potentially cost ‘many thousands’ of jobs.

Nevertheless, on a lack of UK economic data until next week, UK markets have remained relatively stable following the BoE’s markedly ‘resilient’ tone.

GBP/USD Outlook: US PPI Figures in Focus

The US Dollar could, however, edge higher against the Pound later on today if the year-on-year US Producer Price Index figures for June improve.

However, the consensus is that they’ll ease from 2.3% to 2.2%.

Sterling traders, meanwhile, will be looking ahead to Tuesday’s UK average earnings figures, which are expected to improve.

The GBP/USD exchange rate will, however, remain sensitive to political developments surrounding Brexit and the ongoing Tory leadership race into the weekend.

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