ExchangeRates.org.uk - At the time of writing GBP/USD was trading at $1.3196, up approximately 0.5% from Monday’s opening rate. The US Dollar (USD) fell close to multi-year lows on Monday as a lack of fresh US data saw markets bracing for the Federal Reserve’s upcoming interest rate decision, due on Wednesday. While markets widely anticipate that the central bank will begin its policy-easing cycle this week, analysts remain split over whether the Fed will deliver a quarter-point rate reduction, or a more aggressive half-point rate reduction. According to the CME FedWatch Tool, there is currently a 59% likelihood that the Fed will opt for a more drastic 50 basis-points rate cut mid-week, compared to a 41% chance of a 25 basis-points rate cut.
Kathleen Brooks, Research Director at XTB, said: ‘The case for a 50bp rate cut boils down to two things: first, the economic conditions and second, the risk of the Fed falling behind the curve. The economic data is getting weak in the US. The Citi economic surprise index for the US is close to its lowest level since 2015, the labour market is cooling and there are signs of distress in the manufacturing sector, which has been languishing in contraction territory since April.’
Amid growing concerns about the health of the US labour market and wider fears of a possible US recession this year, the Fed faces growing pressure to begin loosening its monetary policy. As a result, USD fell throughout Monday’s European trading hours, hobbling near recent lows amid further Fed speculation.
Pound (GBP) Muted amid UK Economic Concerns
The Pound (GBP) moved in a narrow range no Monday as the week opened with scant UK economic data. The lack of key macroeconomic releases allowed concerns over the forthcoming Autumn Budget to suppress GBP activity. Mounting worries that UK Chancellor Rachel Reeve's upcoming budget may feature steep tax hikes and significant spending cuts served to intensify fears about a £22 billion deficit in the UK's public finances, which could further destabilise the economy. Amid these concerns, a group of leading UK economists publicly called on Chancellor Reeves to reconsider the proposed fiscal strategies for the critical 2024 Autumn Budget. Their concerns were articulated in a letter featured in the Financial Times.
An excerpt from the letter reads: ‘We do not see how the planned “decade of national renewal” can take place if these cuts are delivered. To follow through on these plans would be to repeat the mistakes of the past, where investment cuts made in the name of fiscal prudence have damaged the foundations of the economy and undermined the UK’s long-term fiscal sustainability.’
With ongoing economic uncertainties and insufficient data to provide direction, GBP investors remained wary, avoiding aggressive positions on the Pound as renewed economic gloom in the UK sapped appeal for Sterling.
Pound US Dollar Exchange Rate Forecast: US Retail Data in Focus
Looking ahead, the latest US retail data is due for release on Tuesday afternoon. Ahead of the Fed’s looming rate decision, signs of slowing consumer activity in the US could further pressure the ‘greenback’. Meanwhile, investors may remain reluctant to place any aggressive bets on the Pound ahead of the latest UK inflation data, due for release mid-week. Any news of stubborn UK price pressures ahead of the Bank of England’s impending interest rate decision, due on Thursday, could see GBP edge higher against its rivals, reinforcing speculation that the BoE could enact a less aggressive policy-easing cycle than that of other major central banks in the near term.
This content was originally published on ExchangeRates.org.uk
