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Pound Exchange Rate Slips, Fed Rate Cut in Question

July 24, 2019 8:17 am | Modified July 24, 2019 8:17 am
AUD, Brexit, EUR, GBP, TRY | BY Lauren Bessent

The Pound to US Dollar (GBP/USD) exchange rate slipped yesterday as hopes of a big rate cut from the Federal Reserve faded and markets took stock of Boris Johnson’s victory. Sterling managed to gain ground over the Euro (GBP/EUR) ahead of tomorrow’s policy statement by the European Central Bank (ECB), while the Pound also strengthened against the Australian Dollar (GBP/AUD) overnight in the wake of disappointing data.

IMF Flags Brexit Risk as Pound Exchange Rate Stumbles

The British Pound US Dollar exchange rate (GBP/USD) saw some volatility yesterday in the wake of Boris Johnson’s appointment as leader of the Conservative Party, with early gains quickly being reversed. The pair resumed its downward trend which has been in play since the start of last week as the International Monetary Fund (IMF) cautioned that a no-deal Brexit ranked alongside US trade policy as one of the most significant threats to the world economy. With the impasse between the UK and the European Union showing no signs of shifting after Brussels stressed it wanted to see the existing withdrawal deal ratified, it seems inevitable that the uncertainty will be around for some time yet. Combine this with the fact that the idea of an aggressive half a percent Federal Reserve rate cut next week is losing traction, and the Pound US Dollar exchange rate is likely to continue to suffer as a result.

Prospect of ECB Dovish Bias Knocks Euro Exchange Rate

Despite Brexit uncertainty, the Pound – Euro exchange rate (GBP/EUR) made some headway during Tuesday’s session. Even the release of some slightly better than expected Eurozone consumer confidence data was insufficient to lend any support to the common currency, with expectations over tomorrow’s monetary policy announcement dominating and pushing the cross out to two-week highs as a result. A series of flash Eurozone PMI releases are due for publication today and these will be in focus, although significant overshoots would be necessary if there was to be any material impact on the European Central Bank’s widely expected dovish tone tomorrow.

Turkish Lira Softens as Prospect of Dovish Fed Diminishes

The Pound Sterling Turkish Lira exchange rate (GBP/TRY) has seen some modest gains in recent days, although clarity over monetary policy from the Federal Reserve next week could be instrumental here. The Turkish economy is carrying a lot of US Dollar denominated debt, with Fed rate hikes having been at least in part responsible for the currency’s decline in recent years. However, the idea that a 50-basis point cut now seems increasingly unlikely is consequently weighing on the Turkish Lira’s fortunes.

Why Did it Move? Pound to Australian Dollar (GBP/AUD) Exchange Rate

Overnight saw the release of some private Australian Purchasing Managers’ Index (PMI) data which saw month-on-month declines in both services and manufacturing activity. The data, collated by the Commonwealth Bank of Australia, also noted slower jobs growth and although there is no suggestion that the country’s economy will slip into recession for the quarter, the numbers are clearly disappointing. The Pound Australian Dollar exchange rate traded as low as 1.7670 yesterday morning and the cross now sits at 1.7825.

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