- Fed to keep rates at 0 until 2022
- Dovish Fed gave a reality check to investors, risk off is boosting US Dollar
- Pound (GBR) lower on Brexit concerns
- At 06:15 UTC, Pound to US Dollar (GBP/USD) trades -0.5% at US$1.2677
The Pound is dropping lower versus the US Dollar, snapping a 10-session winning streak. The Pound US Dollar settled on Wednesday +0.13% at US$1.2747, up from US$1.2260 at the end of May.
At 06:15 UTC, GBP/USD is trading -0.5% at US$1.2677 following caution from the Federal Reserve.
The Federal Reserve predicted that it will keep interest rates at 0 until 2022, whilst the Fed said that it remained committed to supporting the economy through the coronavirus pandemic. The Fed predicted that the US economy would contract by -6.5^ this year with unemployment falling to 9.3%.
In the first series of projections since the coronavirus crisis the central bank said that it expects GDP growth of 5% in 2021 and 6.5% unemployment. The Fed was clear that this was going to be a long rocky road to recovery, dashing any V-shaped recovery hopes. Whilst the US Dollar initially fell on the announcement, the greenback is on the rise today as the severity of the damage that coronavirus has caused starts to sink in.
Adding to the risk off sentiment, is a rising number of coronavirus cases in some YS states boosting fears of a second wave of the virus. States such as California, Texas and Florida are raising alarms as they come out of lockdown. When risk sentiment declines investors seek out the safe haven properties of the US Dollar.
The Pound is depressed as Brexit concerns overshadow reopening optimism. EU chief negotiator Michel Barnier gave some stark warnings to the UK in a speech. He told the UK that it can’t “cherry pick” in trade talks and that Britain was demanding more than other countries such as Canada and Japan. The comments highlight the distance that still remains between the EU and the UK in trade talks.
There is no high impacting UK data due today. Investors will look ahead to the release of a slews of figures tomorrow including UK GDP data. April’s GDP is expected to show that the economy contracted -18.6%.
