US Dollar (USD) Weakens as Federal Reserve is Expected to Cut Interest Rates

Published: 31 Jul at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, France, Ireland,

Pound Sterling (GBP)

The Pound (GBP) edged higher against many of its competitors today despite increased no-deal Brexit fears.

Prime Minister Boris Johnson has taken a more confrontational approach on the Irish backstop, requesting that the EU remove it from the withdrawal agreement.

Mr Johnson has increasingly stated the UK would leave the EU without a deal if the Irish backstop was not removed in future negotiations on the agreement, further heightening the likelihood of a no-deal on October 31.

Instead, Sterling benefited from market attention turning to the US Federal Reserve’s interest rate decision today, as traders sought out the Pound amid global economic uncertainty.

US Dollar (USD)

The US Dollar (USD) failed to benefit from today’s ADP employment change figures for July, which beat forecasts by rising from 112k to 156k.

‘Greenback’ investors have been looking ahead to today’s interest rate decision from the Fed, which is expected to be cut from 2.50% to 2.25% - its first rate cut since 2008.

Many analysts are remaining apprehensive ahead of the Fed’s rate statement and FOMC Press Conference, which may reveal an increasingly dovish stance on monetary policy in the near-term.

Euro (EUR)

The Euro (EUR) struggled today following the flash Eurozone year-on-year core inflation figures for July, which fell below forecast from 1.1% to 0.9% – a 17-month low.

Eurozone flash growth figures for the second quarter also eased, halving from 0.4% to 0.2% following the bloc’s increasingly problematic manufacturing sector.

As inflation fell well below forecast, this has heightened the possibility that the European Central Bank (ECB) could push forward with stimulus measures in autumn.

Australian Dollar (AUD)

The Australian Dollar (AUD) benefited today from the publication of the Australian inflation figures for the second quarter, which rose above forecast from 0% to 0.6%.

‘Aussie’ traders, however, will be awaiting this evening’s release of the Australian AiG Performance of Management Index figure for July.

Any signs of improvement could see it claw back some of its losses from the Pound.

New Zealand Dollar (NZD)

The New Zealand Dollar (NZD) fell today following the publication of the ANZ activity outlook figures for July which fell below consensus from 8.0% to 5.0%.

The ANZ Business Confidence index also dropped in July, falling from -31.1 to -44.3 – its lowest level since 2009.

US-China trade talks also ended on a tone of uncertainty, with both superpowers failing to come to any consensus on a possible trade deal, which has further weighed on the risk-averse ‘Kiwi’.

Canadian Dollar (CAD)

The Canadian Dollar (CAD) struggled today despite better-than-expected Canadian growth figures for May, which rose by 0.2%.

‘Loonie’ traders, however, are feeling jittery ahead of the Fed’s interest rate decision, for any signs of a recession could prove a drag on the Bank of Canada’s monetary policy going forward.

Frances Donald, a Chief Economist at Manulife Investment Management, said:

‘What's going to matter most to markets, to economists, to global central banks is not what the Fed does [today] — but why the Fed moves. The reason for that is because if the U.S. economy suffers a recession, so too will Canada — with an approximate six- to 12-month lag.’

As of Wednesday, 31st July 2019, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.0976, GBP USD exchange rate was 1.2161, GBP AUD exchange rate was 1.7759, GBP NZD exchange rate was 1.8536, GBP CAD exchange rate was 1.6039, and GBP CNY exchange rate was 8.3719.

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