ExchangeRates.org.uk - The Pound (GBP) plummeted against the majority of its rivals on Thursday following the BoE’s decision to lower interest rates. Five of the nine BoE rate-setters voted for a quarter-point rate reduction, leading to the bank’s first rate cut since 2020.
Rachel Reeves, the UK’s new Chancellor, commented on the bank’s decision to lower interest rates: ‘While today’s cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget. That is why this government is taking the difficult decisions now to fix the foundations of our economy after years of low growth, so we can rebuild Britain and make every part of our country better off.’
US Dollar (USD) Edges Higher despite Dovish Fed Signals
The US Dollar (USD) recouped some of its recent losses on Thursday despite a slightly dovish shift during the Federal Reserve’s latest monetary policy meeting. While the central bank left interest rates unchanged on Wednesday evening, accompanying guidance suggested that the Fed could begin to lower interest rates in September, should upcoming inflation data continue to reveal signs of easing inflationary pressures in the US.
Analysts at ING noted: ‘As has typically been the case, Fed Chair Powell provided a slighty more dovish spin, signalling a willingness to cut, but emphasised that the data needs to be there to back it up – when questioned he stated the restrictiveness of policy is clear to see. He suggested if inflation data continues to moderate and the employment data cools further then they “could” be in a position to cut interest rates in September. Powell, mentioned that we are now seeing a "normalising" economy with lower inflation being seen in both goods and services, which is very good news. Moreover, within the press conference there was greater focus on jobs than has typically been the case, but again it is down to the data.
Elsewhere, following the BoE’s rate reduction on Thursday afternoon, USD garnered additional investor support, with the Fed being amongst the last of the major central bank’s to begin lowering interest rates.
Pound US Dollar Exchange Rate Forecast: US Jobs Data in Focus
Looking ahead, the latest non farms payrolls report is due for release in the US. Economists expect the release to show that the US economy added 175,000 new jobs in July, falling notably from 206,000 in the previous month. Further signs of slack in the US labour market could see the ‘greenback’ tumble against its rivals, as easing employment bolsters the case for a September rate cut by the Fed. Looking to the UK, a speech from BoE Chief Economist Huw Pill could drive notable volatility. Should Pill signal that an aggressive monetary loosening cycle may be underway from the BoE, Sterling could extend its recent losses, falling to fresh lows against its rivals.
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