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Pound US dollar (GBP/USD) exchange rate forecast: Fed in focus

The pound US dollar (GBP/USD) exchange rate is at a one-year high this morning amid increased expectation that the Federal Reserve will lower interest rates next month.

At the time of writing the GBP/USD exchange rate is trading at around $1.3117, up approximately 0.2% from this morning’s opening rate.

US dollar (USD) pressured by Fed minutes

The US dollar (USD) is recouping some of its recent losses this morning following the publication of the Federal Reserve’s latest meeting minutes.

The release revealed that a ‘vast majority’ of Fed policymakers favour a September interest rate cut, which caused the ‘greenback to strike fresh multi-month lows overnight.

Looking ahead, the latest initial jobless claims report is due for release in the US this afternoon. Economists expect the data to show a slight uptick in the number of newly unemployed American citizens claiming unemployment benefits. Should the data confirm this, signs of continually cooling US employment market may bolster market expectations of rate cut next month, amid further deterioration in the US labour market.

Also due for release this afternoon is the latest set of preliminary PMIs in the US. The vital services index is due to retreat from 55 to 54 this month, which could apply additional pressure to USD exchange rates. Similarly, ongoing weakness in the manufacturing sector could further sour USD sentiment, with the index due to hold at its lowest level of the year for a second successive month, at 49.6.

This evening, Fed’s annual summit kicks off. The Jackson Hole Symposium be a key point of focus for USD investors, who will be eager to analyse Fed rhetoric for further confirmation that the central bank will begin an aggressive set of rate cuts in the coming months. Notably, Fed Chair Powell will deliver a keynote speech on Friday at the summit, with any dovish remarks likely to leave USD in freefall.

Pound (GBP) strengthens amid services expansion

The pound (GBP) is firming against its rivals this morning following a better-than-forecast set of preliminary PMIs in the UK. Both manufacturing and services sectors expanded more than expected in August, indicating ongoing economic recovery across the UK.

Looking ahead, Bank of England (BoE) Governor Andrew Bailey is due to speak at the Fed’s Jackson Hole Symposium tomorrow afternoon. Should Bailey indicate that the central bank could deliver a softer pace of monetary unwinding than other major central banks, GBP could extend its recent winning streak amid pared back rate cut bets.

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