GBP/USD: Pound Gains As Rate Cut Fears Ease, BoE’s Mark Carney Eyed

The Pound (GBP) gained for a second straight session versus the US Dollar (USD) on Wednesday. The Pound to US dollar exchange rate rallied 0.45% to close at US$1.2780 as easing expectations of a Bank of England rate cut overshadowed impressive US service sector data.

At 07:30 UTC GBP/USD is trading 0.1% higher at US$1.2885

BoE’s Andrew Bailey Eases Rate Cut Fears, Carney Next?

After spending much of the previous session close to the flat line the pound pushed higher in later trade following comments from the next BoE governor Andrew Bailey. Mr Bailey said he believed that the BoE should wait for more clarity overt the economic hit from coronavirus before taking any decisions to cut interest rates.

Andrew Bailey’s comments calmed speculation that the BoE would follow in the footsteps of the Federal Reserve. The Fed cut interest rates by 50 basis points on Monday in a bid to support the US economy in a coronavirus slowdown. The Bank of Canada followed suit, cutting a further 50 basis points.

With UK interest rates at 0.75%, a steep 50 basis points cut would not be likely. If the BoE were to cut at the end of the month, it would most likely be a 25 basis points cut.

Today there is little in the way of economic data for investors to digest, instead outgoing Bank of England Governor Mark Carney will speak in London. Investors will be listening closely for his thoughts on how coronavirus could hit the UK economy and what the best course of action would be.

Strong Service Sector PMI & ADP Data Underpins Dollar

The US dollar traded broadly higher in the previous session, as better than forecast private payroll data and impressive service sector figures eased recession fears. The timing of the solid data was crucial as investors are fretting over the negative impact that the coronavirus outbreak could have on the US economy.

ISM non-manufacturing PMI jumped to 57.3 in February, smashing expectations of 54.9. This was the highest reading in the service sector since February last year. The ADP private payroll report also showed a solid 183,000 jobs were created. This is an encouraging sign for Friday’s non-farm payroll.

Today there are a few pieces of mid-tier data to watch including jobless claims and US factory orders.

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