Dollar weakens following cautious Fed

Jun 20, 2019

The Dollar has weakened overnight following the latest Federal Reserve interest rate-setting meeting.

Policymakers kept interest rates on hold but warned that more stimulus was needed to help boost growth. Analysts now expect a rate cut in the US to follow next month (0.25% or possibly 0.5%) and further cuts down the line. Cutting interest rates reduces the appeal of a currency because it reduces the yield investors can make from holding that currency (essentially lower rates means cheaper money from increased supply). The signal from the US Fed follows intent from other global central banks (such as the ECB and Australian central bank) to weaken their own currencies in a bid to help stimulate their economies.

Today, we will see the latest outlook from the Bank of England. UK economic data has been mixed but there seem to be increasing signs of a slowdown in certain areas which is being pinned on the Brexit uncertainty. Boris Johnson remains clear favourite in the Tory leadership battle. Further votes ahead of the weekend will determine who he will face in the Members’ ballot, with the results of this not expected until the week commencing 22nd July.

As a result, we have seen the biggest two-day move in the USD this year with the GBP/USD bouncing over 2-cents higher since Tuesday’s low (now at a 1-week high). The GBP/EUR has also recovered a bit of ground and is towards the upper end of its two-week range.