GBP/USD: Will the Fed cut interest rates?

GBP/USD exchange rates have reached a near two year low today sliding to 1.26 bringing the pounds slide to over 4.5% since the beginning of May. Will this trend continue?

Today’s US retail sales figures were poor coming in at 0.5% against a forecast of 0.6% and with a run of recent poor jobless data from the US pressure is rising on the Federal Reserve to cut interest rates at their meeting scheduled for the 19th June. I wouldn’t expect them to act at Wednesdays meeting but the resulting press conference may well hint at a future cut and therefore the GBP/USD exchange rate could be volatile come next week.

Is the Pound vulnerable?

It is widely expected that the Fed will cut interest rates in the coming months and therefore this should be heavily priced into the market. This therefore shows how vulnerable the pound is in my view. We are currently trading close to a two year low against the US dollar – yes we may see some dollar weakness next week but longer term the pound is vulnerable. The current political uncertainty and fight for number 10 is the likely drive for this.

Boris Johnson, an ardent supporter of Brexit is favourite to be the new Prime Minister and this is where the pound could come under further pressure. With Boris at the helm there is a real chance we could leave the EU with no deal come the 31st October. This will keep the pound firmly on its toes.

Avoiding adverse exchange rate movements

Current sterling exchange rates are precariously placed and vulnerable to some significant downside losses, particularly if we leave the European Union without a deal. With this in mind, anyone purchasing property in the Eurozone or elsewhere in the coming months, should take steps to ensure that a sudden movement in the value of the Pound doesn’t increase the cost of your property unnecessarily.

A popular option is to freeze the rate using a Forward Contract. This is usually done when you have paid your deposit, and guarantees the price you will be paying in Pounds. A 10% deposit is required, and your rate is fixed for up to 2 years. Those less risk averse that want to take the chance of rates improving should Brexit be resolved, can use Stop Loss and Limit Orders. These instruct your broker to purchase your currency if it reaches a particular level, or starts to drop. This allows you to take advantage of any gains while not leaving yourself exposed to a sudden drop in the rate. These types of tools, along with exchange rates that are significantly better than your bank may offer, are why many people choose to take advantage of the services we can offer. On large transfers the saving usually run into thousands of Pounds.

To find out more about how we can help you save money on currency transfers, get in touch today.

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