Expectations of a 50bp Fed rate cut undermine the dollar | 26 September 2024

Event to watch out for today:

15:30 GMT+3. USD - GDP volume change for the quarter

GBPUSD:

The GBP/USD pair hit a new 30-month high on Thursday. A broad-based sell-off in the US Dollar triggered risk supply in cable and strengthened the Pound Sterling. This week's 50bps rate cut by the Federal Reserve (Fed) has helped global markets adopt a risk-on stance, while the Bank of England's (BoE) concerns about holding rates have not caused the Pound to strengthen further.

The only important indicator on Friday will be UK retail sales for August, but it is unlikely to bring much momentum as investors are tired after the dual central bankers - the Fed and the Bank of England. UK retail sales for August are expected to fall to 0.4% from the previous reading of 0.5%, while the annualized figure is expected to remain at 1.4%.

On Thursday, the Bank of England kept interest rates unchanged at 5.0% and the Monetary Policy Committee (MPC) voted seven to one in favor of another rate hold. The Bank of England opened the gates for rate cuts earlier in the summer, cutting rates by a quarter point at its last meeting, but the move may have been premature. Bank of England policymakers are waiting to see how the UK economy performs before making further rate adjustments.

As for U.S. data, initial jobless claims for the week ending September 13 fell to 219,000, down from the previous week's revised 231,000 and below the market's median forecast of 230,000. The Philadelphia Fed's manufacturing activity survey for September also came in above expectations, with the manufacturing conditions index improving to 1.7 from the previous seven-month low of -7.0 and well above the expected -1.0.

Fed Chairman Jerome Powell convinced markets that the Fed's excessive 50 bps rate cut this week was not a hasty reaction to deteriorating economic conditions, but rather an attempt to get ahead of the curve and support the US labor market. Powell successfully suggested renaming the rate cut by as much as half a percent as a “recalibration” and investors rewarded the Fed's latest twist by pouring money into risk assets across the board and pulling the rug out from under the safe-haven US dollar.

Trading recommendation: Trade predominantly with Buy orders from the current price level.

FreshForex offers a wonderful 300% bonus on every deposit of $100 or more, giving you the opportunity to increase your trading volumes!