Dovish Fed to propel GBP/USD over $1.29?

Philip McHugh October 30th 2019 - 2 minute read

The pound fluctuated yesterday as parliament backed a bill to trigger a snap election, kicking up some fresh political uncertainty.

Sterling is mostly flat so far this morning, with GBP/EUR range bound at €1.1592, GBP/USD stable at $1.2886, and GBP/CAD muted at C$1.6858. GBP/AUD and GBP/NZD are holding steady at AU$1.8756 and NZ$2.0280 respectively.

The Federal Reserve could steal the limelight today and send the US dollar lower if it announces its third consecutive rate cut.

What’s been happening?

The pound trended higher through the first half of Tuesday’s trading session, as Labour announced it would back Johnson’s bill calling for an early election.

This upswing in Sterling sentiment appeared to come from some optimistic GBP investors, who hope that the election may help to break the current deadlock in parliament.

However, the pound gave back some of these gains later in the session when MP’s approved the bill to trigger a 12 December poll.

In the absence of any notable releases the euro struggled to find momentum yesterday, leaving EUR exchange rates mostly range bound throughout the session.

Meanwhile, the US dollar softened on Tuesday, with corroding US consumer confidence and caution ahead of today’s Fed rate decision both weighing on USD sentiment.

What’s coming up?

The Federal Reserve is expected to cut interest rates later today.

However, with an October cut having already been priced in by markets, any subsequent movement in the US dollar is likely to be dependent on the bank’s forward guidance. Will hints of further easing see USD exchange rates plummet?

On top of this we also have the preliminary release of the US third quarter GDP figures, with an expected slowdown in growth heaping more pressure on the ‘greenback’.

For EUR investors there will also be plenty for them to sink their teeth into today, with Eurozone business confidence and German unemployment and inflation all likely to impact the euro.

Finally, the pound will be taking a back seat for once, with the UK currency likely to enter a holding position as UK political parties begin to gear up for the upcoming election.

Written by
Philip McHugh

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