US Dollar Dips Again on Fed Rate Cut Talk, GBP/USD Targets 30-Month Best

September 17, 2024 - Written by John Cameron

STORY LINK US Dollar Dips Again on Fed Rate Cut Talk, GBP/USD Targets 30-Month Best

US dollar exchange rates lost further ground on Monday with stronger chatter that the Federal Reserve will deliver a larger 50 basis-point (bp) rate cut this week.

With strong expectations that the Bank of England will decide against a rate cut at its own meeting, the Pound to Dollar (GBP/USD) exchange rate has strengthened to 1.3180.

Interest Rate decisions are likely to dominate sentiment

According to MUFG; “With the BoE still expected to cut rates more slowly than the Fed in the coming months, any pullback for cable will be viewed as a short-term buying opportunity in anticipation that it can still rise further above the August high at 1.3266.”

During the weekend, there has been a further shift in expectations for this week’s Fed rate decision with the chances of a 50 basis-point cut now close to 60% from just below 50% late last week.

MUFG commented; “We have argued on numerous occasions that a bigger cut is justified.”

According to JPMorgan economist Michael Feroli; "We agree it is likely to be a close call, but we also believe the Fed will make the 'right' move and go 50bp."

He added; "The case for a 50bp cut seems clear to us: various iterations of a Taylor Rule imply policy is currently a full percentage point or more too restrictive."

At this stage, Danske Bank is still backing a 25 basis-point move.

The bank added; “If our call for a 25bp cut materializes, the USD could strengthen following the announcement. However, the potential for significant USD appreciation is likely limited.”

According to Rabobank; “We expect the labor market to deteriorate further in the remainder of the year, leading to four consecutive rate cuts of 25 bps each in the upcoming four scheduled FOMC meetings: September, November, December and January. There is a substantial risk of a 50 bps cut at one of these meetings, including the September meeting, although it is not our baseline.”

Domestically, Rightmove reported that UK house prices increased 0.8% for September after a 1.5% drop the previous month. The data is not seasonally adjusted and the annual increased strengthened to 1.2% from 0.8%.

Tim Bannister, Rightmove’s director of property science, commented; “The autumn action has started early with a strong rebound in activity from both buyers and sellers, continuing the momentum from the better-than-expected summer market.

He pointed to certainty provided by a new government and the Bank of England rate cut.

There was still an element of caution; “However, windows of opportunity tend to need a momentum of good news to stay open, and there are still uncertainties ahead which could cause some of the current market activity to ease.”

Assuming no change in BoE rates this week forward guidance will be an important element for the Pound.

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TAGS: Pound Dollar Forecasts